duckthing

We provide the notice to the sponsor along with instructions/deadline info. The recordkeeper's annual fee disclosure may or may not include the appropriate language, but it's a minor thing to take care of... especially for safe harbor plans where you're already providing the annual SH notice anyway. Ultimately the responsibility falls on the plan administrator, and as somebody who's expected to help the plan administrator meet the requirements and responsibilities of the plan, I wouldn't be at all comfortable saying "I just assumed John Hancock was doing it" if it ever became an issue. (edited: plan administrator, not sponsor!)

That's why I'm thinking some of us (including me) might be misunderstanding what you're suggesting. I don't think anybody believes loans aren't investments -- well, I hope not, anyway! As long as the loans are being repaid under the same money type as they were taken out from, I don't think what you're suggesting is an issue. It just wasn't clear to me whether what you're proposing is that the loans can merely be repaid to a different investment option than the one they were taken from (which I think is reasonable) or whether they can be shifted to another money type entirely (which I think is less reasonable). In other words, based on the wording in your original post my question would be "Is the end result that the participant now has $5,000 of matching money in his '401(k) account' and will repay $5,000 of 401(k) money to his 'match account'?" If the answer is yes then I think this is doable as long as you've got good enough notes to explain to Future Austin why this participant has 401(k) money in the "match account" and vice versa. If the answer is no, I don't think the reasoning that it's okay because the final balances will ultimately work out the same (assuming the loan is fully repaid, and only because the participant is fully vested and happens to have all money invested in Fund A) is especially reassuring.

If you're disaggregating for testing (I'm assuming you have something like immediate or 6-month eligibility for 401(k)/SH and 1 yr/1000 hrs for PS/match) they would fall in the statutorily excludable plan and would not need a minimum gateway contribution -- that plan probably has no HCEs, and even if it does, they're not getting anything more than the 3% SHNE themselves. If not disaggregating, then yes. But even if they need an additional 2% of comp on top of the SHNE it's probably not a ton of money... they never met the 1 yr/1000 hrs initial eligibility requirement for PS, so it's not like they walked out with $50K in unused paid leave!

Good planning for sure. Stay safe!

I hate to be a nay-sayer! I think calling a brokerage account a "401(k)" or "match" account is confusing matters. Say your example participant had $10,000 in corporate bonds in Account A and $10,000 invested in mutual funds in Account B. You can call Account A "401(k) account" and Account B "match account" but moving money from Account B to Account A doesn't (for example) remove the vesting requirement and impose age 59-1/2 withdrawal restrictions from that money, or vice versa. If he has $10,000 in Account A as 401(k) money and $10,000 in Account B as match money and takes the loan out from Account A, he can repay it to Account B if he chooses, but that doesn't mean it's match money. It's 401(k) money that's being repaid to an account that happens to be referred to as the "match account". Edit: am I completely misreading what you're suggesting? It's been a long day!

So is the question ultimately "where does it say that you can't arbitrarily move plan assets from one money type to another?" (I don't know the answer offhand, but it must be out there!) If this were permitted, what would stop a participant from taking non-vested employer money out as part of a loan, then declaring that they'll be repaying the loan as 401(k) money as a result of investment "rebalancing"? As an example... A participant has a 401(k) balance of $5,000 and a PS balance of $5,000; he's 0% vested in the PS money. He takes a $2,500 loan, which is pro-rated as $1,250 from 401(k) and $1,250 from PS. He "rebalances" his investments, declaring that the entire loan is now a 401(k) directed investment to be repaid to the plan as 401(k) money. He pays the loan back immediately, and now has $6,250 in his 401(k) account and $3,750 in his profit sharing account. He terminates the next day and takes his vested balance, which has jumped from $5,000 to $6,250 overnight simply because he "rebalanced" his loan. (Edited to fix loan amount, obviously he can only take 50% of the vested portion!)

I don't know if the loan even comes into play here. Under what circumstances (other than an in-plan Roth rollover) would a participant be able to change the money type of funds that are in the plan? It sounds like this proposal would let him take a $5,000 loan from 401(k) money and repay it as matching money. I don't believe that would count as an investment change or portfolio rebalancing, regardless of whether a loan exists or not. If it were a case where he had his 401(k) money in Fund A and his matching money in Fund B, I don't see why you couldn't say that the loan taken from Fund A can be repaid instead to Fund B, but that doesn't turn it into matching money; it's just 401(k) money that's now sitting in Fund B. And since you mentioned both money types are invested in Fund A, it doesn't sound like that's the situation here.

I'm with you, though I'm leaving it in for now just to be safe. I don't understand why this should be on an SAR in the first place. The SAR is not an attempt to obtain any information whatsoever from anybody. Maybe I'm just out of the loop on the thought process here, but to me none of this language makes any sense on this document. In particular, things like: How is this relevant to the participant who's looking at the SAR? On the off chance a participant actually reads this, they're likely to come away thinking they're required to provide some information in response.

I could be misunderstanding the question here. It sounds to me like the participant has not yet reached their required beginning date but wants to take an in-service withdrawal that would not otherwise be permitted by declaring part of it to be an RMD. It sounds to me like the original question boils down to "If this participant chooses to take an RMD this year, can they choose not to take one the following year?" And I don't think the premise of the question makes sense -- either the participant is required to take an RMD, or they're not.

Understood. Is this participant required to take an RMD? Or are they just trying to take an in-service withdrawal and thinking that if they call part of it an RMD they'll be able to take the rest as well?

Maybe I'm missing something in your explanation... but assuming this participant wasn't a >5% owner the year they turned 70.5, it sounds like they want to take an in-service withdrawal that's not permitted by the plan. Taking one anyway and calling it an RMD doesn't make it an RMD.

We send all of ours out in one batch/envelope with a list, and have never had any questions or problems.

Not according to EOB, which agrees with my hazy memory on this:

If you rolled over the balance from your old 401(k) to an IRA at Wealthfront, you'll need to contact Wealthfront about taking a distribution from it. I'm not sure what you mean by "deducted the full balance."

It sounds like maybe you're using the term "employee contributions" to mean "contributions made to an employee's hypothetical account", which is probably going to confuse things further if you're not actually talking about employees contributing to the plan. The "guaranteed" interest rate here is what's being used to calculate the value of the participant's hypothetical account as of a valuation date. This is probably not the same as the interest rate that you'd use to calculate the PV of that hypothetical account. You're asking two separate questions (how does a cash balance plan work, and how does the PUC cost method work) and delineating them a bit might help you find answers faster. Good luck in your studies!

Unless you're brand new in the field, don't feel like you have to buy materials. There are practice exams out there (search for "DC-1 flashcards") that can help you identify where you need more review. A lot of it is stuff you've seen and done already if you've been doing TPA work for a while. If you're comfortable using practice exams to identify weak spots, then brushing up on them using material that's available for free on the web, you don't need to spend a dime studying. If you're not comfortable self-directing your study like that, there's certainly nothing wrong with buying whatever materials you'd like. But you shouldn't feel like you must spend $X to get a passing result, because there aren't any forbidden secrets in the study guides that can't be found anywhere else (uh, as far as I know...) It's absolutely possible to do well on both exams without buying anything.

No. From what you've described, the two plans are aggregated for top-heavy purposes. Each plan does not need to satisfy the top-heavy minimum separately. (Edit: I assumed you meant going forward, after the plan(s) have been amended. If you're talking about what would need to be done hypothetically if the plan had been top heavy for, say, 2018, I agree with ESOP Guy's response.) Yes, it absolutely makes sense to coordinate the documents so that only one plan is providing the minimum in a year that it's required.

Since you ruled out a management organization situation, that's my understanding as well.

Does the plan document specify the matching formula, or does it just say the match is discretionary? How many years are we talking about here, 5ish or 20ish? I can't speak to the questions about IRS response and possible corrections/sanctions, but I'd recommend taking a look at the just-released Rev Proc 2019-19, which expanded the class of operational failures that can be corrected via retroactive plan amendment. It's possible some of your problems (matched deferrals not capped at 6% of compensation) can be fixed this way under the new rules. Of course the existing correction under SCP for allocations based on compensation that exceeded the 401(a)(17) limit is still available. Unfortunately there is still a time limit for fixing significant errors via SCP so it sounds like VCP would still be needed for some years, assuming you determine these failures are significant. It sounds like there are failures at multiple levels here, from payroll up to the auditor. The fact that the auditors' samples didn't catch an issue that occurred for 60% of the participants is worrying. Somebody with more IRS experience than I have might be able to speak to the possible benefits of an anonymous VCP filing and/or having a separate auditor review the years in question prior to the filing.

MoJo, I don't see the "shifting to plan year" in the document section that was quoted. It says that for vesting purposes the computation period is the plan year. I think you'd generally only see an 'overlap' where service counts toward two computation periods like this in the case of a short plan year. Same ultimate outcome though. wifrbr: Yes, if the document says the computation period is a twelve-month period that lines up with anniversaries of hire date, that's fine too.

Like Bird said, this is likely to confuse participants. If you are the TPA, there are also a few other items I'd consider: What problem is this intended to solve? Do the plan document and trust agreement permit it? If it's not a pooled account, is the recordkeeper on board?

I got the same response Bird did, within the last few months. I was advised by JH that they can only prepare a 1099-R for a deemed/offset loan as of the current date, and that their 1099-R process is completely automated so they have no way to create one manually for this situation. I ended up having them just close the loan out on their system and we issued the 1099-R ourselves. Offhand, I agree with not adding the accrued interest on the loan since 9/30/18 to the amount to be reported on the 1099-R. Our loan procedures documents say something under the section about loan defaults along the lines of "interest will continue to accrue until you have a distributable event" -- assuming your plan permits distributions immediately upon termination, that distributable event happened when the participant terminated whether or not the 1099-R was issued timely. If anyone has seen guidance to the contrary I'm interest to see it! I'm not sure if there's anything in RP 2019-19 that would let you report this in 2019 rather than 2018 without going to VCP, but it might be worth a look.

I had the same initial thoughts as ESOP Guy. I'm assuming you're the TPA here. The sponsor/employer should not be leaving it to you to determine whether or not an employee is "seasonal" -- they should be telling you which employees are "seasonal", and that determination had better be independent of how many hours the person worked.

I don't think there's a quick answer here without more information from the employer. There are legitimate if rare situations where an employee could also be receiving a 1099-MISC for comp outside of the normal employer/employee relationship, in addition to their W-2 wages. So I think the question that needs to be asked of the employer (and they should throw it to their counsel, not just have somebody in payroll answer) is whether the 1099 was for services the person actually performed as an independent contractor or not. From the wording of the question, it sounds like the answer is no -- that this employee just decided they want part of their pay on a W-2 and part of it on a 1099. If that's the case then they have withholding and reporting issues that need to be sorted out. The result of sorting those issues out may be that the participant ends up getting a corrected W-2 for the year(s) in question, and it's possible the plan doesn't need to refund any deferrals -- if all of this compensation was eligible for plan purposes, it didn't become ineligible just because the employer reported it incorrectly, and a corrected W-2 showing the full amount available for deferrals should answer the question of how the plan should treat the compensation.

My understanding has always been the same as that of Bird/just: the deduction limit is 25% of total eligible compensation for the plan, and the only other limit the partner has to worry about is their 415 annual additions. For what it's worth, EOB is very clear on this -- I hope I'm not breaking any rules by posting the paragraph verbatim here: