kmhaab

Company A and Company B are owned by the same individual and each have their own 401(k) plan (lets' call them Plan A and Plan B. Nondiscrimination testing has been done on a controlled group basis. It has come to light that the testing was not done correctly with respect to Plan A for the past several years - union and nonunion employees were not tested separately as required. Plan B has no union participants. The testing is in the process of being redone correctly. What are the risks to Plan B in this situation? If they fail to pass the tests now, when Plan A's union/nonunion employees are disaggregated correctly, is this a failure to pass for Plan B? I presume it would be, but what if the actions taken to get the plans to pass apply only to Plan A (i.e. Plan A makes QNECs)? Since we're talking about prior plan years, does Plan B have to file with VCP since they failed the nondiscrimination testing and didn't correct within the designated time period? Even if the correction actions are to be taken by Plan A only?

1. If a plan sponsor makes a QNEC to make up for missed deferrals that is equal to 100% of missed deferral opportunity instead of 50%, is that ok? 2. If a plan sponsor makes QNECs of 50% missed deferrals to correct one type of error (incorrect definition of compensation) and QNECs of 100% missed deferrals to correct a different error (failure to correctly implement election due to incorrect application of deferral limits), is that ok? Plan sponsor made corrections to 401k plan in Dec 2016 to correct for incorrect definition of compensation. Some employees received 50% QNECs to make up for missed deferrals, others received distributions of excess amounts. In March 2017 sponsor realized the Dec distributions resulted in several highly paid participants deferring an amount less than the statutory limit when they would have deferred the statutory limit if the errors had not ocurred. i.e. Person A elected to contribute 10% of pay. His contributions were stopped in July when he hit $18,000. In Dec, correction was made for inclusion of ineligible comp in those deferrals and he received a distribution of $1,500. No adjustment was made for his contributions being "turned off" in July due to limit, thus his total contributions for 2016 were $16,500. However, if his election had been implemented correctly he would have continued deferring until he hit $18,000. Sponsor made a QNEC of $1,500 in March 2017 to correct. The question is whether there is a issue with the 100% QNEC made in March (small number of more highly paid) being inconsistent with the 50% QNECs for most participants, and if so, what should be done?

Due to the use of an incorrect definition of compensation it was determined in late 2016 that several plan participants had made excess contributions to the plan during the 2015 and 2016 plan years. Participants were making salary deferrals on types of compensation that were not eligible compensation under the plan document (i.e commission). A distribution from the plan is the appropriate way to correct for such excess contributions. But would it also be permissible for to refund the excess contributions (adjusted for earnings) to the employees through payroll, particularly if the correction was being made within the same plan year as the error? i.e. If an employee had $100 in excess contributions in 2016, could the $100 plus earnings be returned to the employee as taxable income in the 12/31/2016 paycheck? What about an excess amount from the prior year (2015)?

Thank you!

When seller is required to terminate its 401k plan prior to the close of a merger/acquisition (stock deal), what date is typically used for the termination date? Is it typically the day immediately prior to close? Or a date further in advance of close? I've been using the date immediately prior to close, as plan termination is generally subject to close, and this allows participants to continue their deferrals as long as possible. However, this seems to complicate the actual administration of the termination re: timing of last contributions, etc. Any thoughts would be appreciated!

When seller is required to terminate its 401k plan prior to the close of a merger/acquisition (stock deal), what date is typically used for the termination date? Is it typically the day immediately prior to close? Or a date further in advance of close? I've been using the date immediately prior to close, as plan termination is generally subject to close, and this allows participants to continue their deferrals as long as possible. However, this seems to complicate the actual administration of the termination re: timing of last contributions, etc. Any thoughts would be appreciated!

Can anyone give me the names of financial institutions that will work with a small employer to set up traditional IRAs for employees and accept contribution via payroll deductions? Client's bank seems unwilling to do it. Thanks in advance!!

Thank you!

This isn't a 409A question, but I can't find anywhere else to post a more general executive compensation question. What type of service providers typically perform 280g calculations? Accountants? Attorneys?

Can a Limited Liability Company that is not a bank or trust company be named as the trustee of an ESOP? The ESOP Trustee for a client's ESOP has been an LLC that provides ESOP fiduciary and trustee services. Client is refinancing loan and being told by lender that the trustee technically should have been the individual owner/manager of the LLC in his individual capacity and not the LLC itself. I cannot figure out why. Any thoughts?

Thank you for your response. Yes, I would think that if no amendment is needed, there is no document failure to correct. But I am unsure how to reconcile this with the requirement that the plan be restated every 5 years. Do they still need to restate the plan on the 5 year cycle if there have been no amendments? They wouldn't actually be restating anything, just updating the date of the restatement on the plan document. What about the determination letter? The prior favorable letter expired on 1/31/2016, but there have been no changes to the plan and I believe the plan is in compliance with all required qualification changes since the last restatement. Do they need a new determination letter and if so can that be done retroactively to 2/1/2016?

Must an individually designed profit sharing and 401(k) plan be restated according to the 5 year cycle, if there are no amendments needed? The plan was amended and restated in 2010 and incorporated all of the required PPA, Heart, EGGTRA, etc. amendments. It's already compliant with Windsor and upon a quick review of the cumulative list of changes in qualification requirements it appears to be compliant. However, under the rules re: the remedial cycle in effect at the time the plan should have been restated in 2015 and the plan should have filed for a determination letter. My interpretation is that the only error was a failure to apply for a determination letter in 2015. Is this considered a "nonamender" failure if there are no amendments that were failed to be adopted? Does the plan need to correct through VCP, or simply file for a determination letter at this time? Any guidance would be appreciated.

Employee took out a 401k loan in April 2016. Loan repayments were never entered into payroll due to oversight on part of payroll coordinator. Loan defaulted due to nonpayment per plan. Employee says she never received notice of any kind regarding the default until receiving the 1099. Employer wants to correct the default so that employee doesn't have to pay the taxes. Can they correct through VCP and where can I get info on how? I'm looking at Rev. Proc. 2016-51 6.07, but not finding it to be much help. Thanks for any assistance you can provide.

Employer did a buyout of supplemental life insurance policies for a handful of executives. Policies were surrendered and executives paid the cash value. Question is whether this buyout amount is included as compensation for 401(k) purposes. The plan defines compensation as total cash compensation, including overtime pay, commissions and bonuses but excluding fringe benefits, welfare benefits, deferred compensation, reimbursement and expense allowances. Would the buyout amount be considered a fringe benefit, even though it was paid in cash? Any thoughts are appreciated.

Has anyone seen a situation where employees' health insurance premiums are set as a percentage of the employee's wages on an ongoing basis - and wages can vary weekly resulting in a different premium cost every week (or month)? I'm familiar with using a percent of pay at a given point in time to set a premium for the year, but not with using a percent on an ongoing basis with employees with variable pay. I cannot find anything prohibiting this practice, although I can see lots of complications. Any and all thoughts appreciated!

Thank you Lou S. and jpod! Kelly

Pension plan erroneously made a lump sum distribution to an individual who had never been a participant in the plan or worked for the employer. Do the ECPRS correction procedures for an overpayment apply here or is there something more specific to this situation? The ECPRS definition of overpayment refers to a payment to a "participant or beneficiary" - and this individual was neither. Here's the story - former employee allegedly provides a name and SSN that do not belong to him he was hired. Employee Bill participates in the pension plan under the false name and SSN for a few years but is eventually terminated for providing false employment documents (apx. 2008). In 2016, the individual whose name and SSN were used by the former employee applies for social security and receives a 'Potential Private Pension Benefit Notice' regarding the pension benefit under his name and SSN. He contacts the employer (whom he never worked for), files a claim, and is paid a lump sum distribution of apx. $7,000. He provided a different DOB than what was on file for the former employee but that was not caught at the time. Someone how he learns there is a 401k benefit under his name/SSN as well and while trying to get that paid to him, he discloses to the employer that he had never worked for the employer and was allegedly a victim of identity theft by a cousin. Recipient is refusing to pay the $7,000 distribution back to the plan. I'm clear on the rights of the real former employee to the benefits he earned while working, despite the incorrect SSN, and that he will have to provide a valid SSN or TIN to receive distributions from the qualified plans. But how does the employer correct the $7,000 distribution to other guy? Do the ECPRS overpayment procedures apply? Does the employer have any avenues available for recoupment that they would not have if this was an overpayment to an actual participant (i.e. does this guy have rights under ERISA here)? The employer made the error here, but the recipient also made a claim for benefits from a plan he knows he never participated in. He has acknowledged that the former employee participated in the plan and "earned" the pension benefit using the recipient's SSN. Any thoughts would be appreciated!

Ryan - helpful article, thank you. And I agree this is wasting a large amount of time and paper (as is much of the ACA)! Based on your research on the issue - do you believe there's a possibility of errors in the IRS database or errors created by the mismatch process? Looking solely at employee SSNs - why would this be the first time an employer receives notice of a mismatch for a current employee? If they've been reporting wages for some time now with no issue? I think this could be a HUGE issue for some employers that nobody is talking about.

I agree that in many situations correcting sooner rather than later makes sense, but there could be situations where a business reason might exist to be more deliberate in the timing (i.e. what if significant percent of workforce has SSN errors and there could be immigration issues?). I'm trying to figure out what the options are for an employer under the regulations. Ryan - helpful article, thanks!

I am interested in others' interpretations of the IRS regulations and guidance on potential penalties for incorrect SSNs on Form 1095-C. Specifically, if an employer receives a TIN Validation Error when filing a 1095-C electronically, indicating there is a mismatch between an employee's SSN and Name in the IRS database (either a mismatch or no record), is the employer required to verify the SSN with the employee and make an attempt to correct the return, in order to demonstrate a good faith effort to comply (and thus avoid a penalty for failure to file a correct return)? Or is documentation of the initial receipt of the incorrect SSN from the employee enough to demonstrate good faith effort (i.e. a Form W-4)? Does the 2015 relief from penalties for filing incomplete or inaccurate information based on a "good faith effort" to comply mean that the regulations under 26 CFR 301.6724-1 pertaining to a waiver of penalties due to reasonable cause don't apply for 2015? Should an employer receiving a mismatch error notice thru the efile system verify the SSN with employee now, or wait until a formal penalty notice is received? I'm setting aside the myriad of immigration and discrimination issues this presents for purposes of this discussion. Any input or discussion would be greatly appreciated!!

I'm hoping to get some input if I rephrase my question - as I can't find the answer anywhere. Answer must be painfully obvious to everyone but me, as I can't believe this is an uncommon scenario! Purely non-elective deferral plan (SERP agreement) already pays benefits on a separation from service due to death, disability or normal retirement. Is an amendment to also pay benefits upon involuntary termination an impermissible acceleration of benefits under 409A? I can't determine whether that's considered a modification to the timing of benefits or not. My interpretation is that such an amendment would be a violation of 409A. I would appreciate any and all feedback. Thank you!

SERP currently is drafted to pay benefits upon the executive's death, disability or normal retirement. Can it be amended to also pay benefits upon an involuntary termination without violating 409A? My interpretation is No - is that correct?

I have a question about the filing of a final Form 5500 after a 401k plan termination. All assets of a 401k Plan Sponsor are being purchased in an asset sale and while the Plan Sponsor legal entity will continue to exist for a period of time, there will be no employees. The Plan Sponsor is terminating all benefit plans, including the 401k, as of the day of the transaction. The Buyer is not assuming any of the Plan Sponsor's benefit plan liabilities in the purchase agreement. Clearly it will take some time for the 401k assets to be distributed after the plan termination date. So who files the Final Form 5500 in a situation like this? I would assume the Plan Sponsor is responsible for the filing as long as the entity is still in existence at that time, right? Would the Buyer have any responsibility? I'm curious how others have seen this handled. Thank you!