401(k)athryn

While reviewing a plan's 2018 fidelity bond, I see that it is $30,000. Assets reported on the 5500-SF are $305,000 as of 1/1/2018, which includes $250,000 in assets and a $55,000 employer contribution that was not deposited until 2019. I could ask the client to increase coverage retroactively to meet the 10% requirement for 2018, but is this necessary if the assets actually invested in the plan were only $250,000?

Luke Bailey - yes, it is a non-governmental 501(c)(3). Patricia - Thank you! You suggest starting an ERISA 403(b) and having the employee and employer contributions in that plan. The non-ERISA 403(b) plan would freeze. Are you saying that the 401(a) would terminate or transfer to ERISA 403(b)? Another option presented to me was to add employer contributions to the non-ERISA 403(b) Plan, which would make it an ERISA plan. We would restate the plan document. The problem with this option is that the accounts in the non-ERISA 403(b) Plan are in multiple vendors and the plan sposnor does not receive financial statements. Not sure that we could get the info needed to accurately report on the plans assets to file a 5500. This certainly makes me like your idea of a new ERISA 403(b) Plan much better than adding employer contributions to the existing non-ERISA 403(b).

I use both, but much prefer the EOB, even though it could use some system enhancements in how it links to other sections when using the electronic version.

We have a potential client with the following plans: 1) ERISA 403(b) Plan covering non-union employees. This plan excludes union employees by way of the following employee exclusion - " Employees who are eligible to participate in a plan of the Employer offering a qualified cash or deferred election under Code section 401(k) or a contract described in Code section 403(b)." 2) non-ERISA 403(b) Plan covering union employees (deferral only, limited employer involvement). Multiple vendor options. 3) 401(a) Plan covering union employees (employer contributions). One vendor option. Questions - Would employer contributions to a 401(a) plan for the union employees eliminate the ERISA exemption for the union 403(b) Plan? I see nothing indicating that employer contributions to another plan would impact non-ERISA status, but if anyone has info stating otherwise, please share. Is there any reason the 401(a) plan would not be subject to ERISA? I would not think so, but I am searching for a 5500 on the DOL website and don't see one (gulp). Since I believe that the 401(a) Plan is subject to ERISA, I feel like they could easily stop allowing deferrals to the non-ERISA 403(b) and make them available in the 401(a) plan. It would not eliminate the non-ERISA 403(b), which would be near impossible to terminate, but would at least allow them to restrict where new deferrals are going to simplify the contribution submission process, rather than sending to three different investment providers each pay period. I don't see any downside to this. Do you? Thanks!

Thanks, Mike. I agree. I had come to that conclusion as well. Looking to have the change effective 1/1/2020. Also, it will not be drafted as an "auto allowance" exclusion, but would be the safe harbor definition that excludes fringe benefits, reimbursements, etc. I saw some threads on whether auto allowance is actually a fringe benefit and there was interesting debate, but I believe that it is.

Thanks! I read the new procedure. It refers to deemed distributions. Perhaps a dumb question - Can I assume that they are also talking about "loan offsets", which is the situation with my client? In other words, I thought a deemed distribution only occurs when there is no distributable event. If that is the case, I'm not seeing any guidance in the new Rev. Proc. But, if we assume that any reference to a "deemed distribution" also applies in my case, then it says that "the deemed distribution may be reported on Form 1099-R with respect to the affected participant for the year of correction (instead of the year of the failure)." So, I would be fine with the 1099-R being issued for 2019, but am still concerned about the extra interest that has accrued from 10/1/2018 - now, as the end of the cure period was 9/30/2018. I'm not sure who is ultimately responsible for defaulting a loan, but it is not the participant. As a TPA, we monitor and have defaults processed. The prior TPA of this plan is no longer involved and I certainly don't expect them to take responsibility. Not even trying to get them involved. I have reached out to John Hancock and will see if they can default this loan year using the 9/30/2018 balance and just wipe out the additional interest. I'll let you know!

I'm pretty sure that I can get John Hancock to prepare the 1099-R with any amount that I give them. I don't think it needs to be the current balance. As far as the earnings, since it was not the participant's fault that the loan offset is being reported late, I do not see how it is okay that she should have to pay taxes on the additional interest. It was large loan so the additional interest is approx. $2,000. Does anyone else think that a current balance would be acceptable?

Good day! We are in the process of taking over a 401(k) Plan and I have just discovered that there is an outstanding loan balance for a participant who terminated employment in 2017. She continued making payments until June of 2018, then no more payments. The prior TPA should have had the loan offset as of 9/30/2018, the end of the cure period. I will need to offset the loan now, but it has been accruing interest since last June. I will request that the recordkeeper (Hancock) offset the loan using the balance on 9/30/2018, which is the date that this should have been done. Do you agree? I don't think it is fair to the participant to have to pay any additional interest. Also, I do not see anything in EPCRS about a late loan offset and I don't want the participant to have to redo 2018 taxes, so do you think it is okay to have this reported as 2019 taxable income even though it should have been 2018 income? Any guidance would be appreciated!

Thank you, all!

All of the 2018 involuntary terms occurred on the same date in October, so that was a clear "event". So far, this year, I have 2 involuntary terms on 1/15/2019 and 2 on 1/31/2019 and none after that. I do not believe that those January terms would be considered part of the 2018 partial term, although I know business has consistently not be good since last fall.

Thank you! I am sure they don't want to fully vest these participants if there is even a small chance that it will NOT be a partial term based upon the full year. I suppose I just need to allow balances to forfeit and make sure the plan sponsor does not use them before a final determination has been made.

I have a client that experienced a partial plan termination in 2018 because more than 20% of eligible employees were terminated involuntarily. This year, I have continued to receive withdrawal requests and have determined that, if I were to make a partial termination determination based upon January - April 2019, it would be a partial term and these 2019 terminated employees should be fully vested. It is possible that there will be enough new plan entrants throughout 2019 to have a result that it is NOT a partial term based upon the full year. I am hesitant to wait until the end of year, as I normally would, because I don't want to have to reinstate forfeitures when that could have been avoided. Does anyone make partial termination determinations throughout the year (if you have a reason to suspect a partial term) or do you always look at the plan year? In my case, it is not a single event where people are laid off or a division shut down. I would not say that these are related to the 2018 lay offs, either.

Hi all - I have seen threads discussing the issue of amending a safe harbor plan's definition of compensation mid-year. It seems people are in agreement that you cannot amend to exclude Compensation mid-year because this would reduce the safe harbor contribution. I have a client that would like to exclude auto allowance pay starting 7/1/2019 (a calendar year plan). Notice 2016-16 prohibits the following change- A mid-year change to modify (or add) a formula used to determine matching contributions (or the definition of compensation used to determine matching contributions) if the change increases the amount of matching contribution, or to permit matching contributions. This type of change is possible if certain conditions are met. If my client amends to exclude auto allowance mid year, it would decrease the safe harbor match for the remainder of the year (they allocate each pay period). The above only prohibits a plan from an amendment that would increase the safe harbor contribution. So, can I amend mid-year without it having to be retro to 1/1/2019? If NOT, what am I missing? Thanks, Kathryn

Thanks, Bird. I believe you are indicating that you might show these dividends and distributions that occurred in 2019 as accrued activity for 2018 and report these amounts on the 2018 FINAL Form 5500. I had not thought of that, but it actually makes a lot of sense.

A plan terminates in 2018 and all assets are paid by 9/30/2018. In March 2019, residual dividends hit a few accounts and are paid out to the participants. I was planning to file a final Form 5500-SF for 2018 with an ending balance of $0 (accurate). Do I need to file the final for 2019, instead? In this case, both the beginning and ending balances will be $0 with a small amount of earnings and distributions. If you think I would need to file the final for 2019, then I assume I would have needed to amend the file Form 5500-SF for 2018 if I had already filed it. I am frustrated with the investment platform because I can't imagine why dividends posted so late, although I would guess this issue is common when plans pay out final assets in December. I did not quote the plan sponsor a fee for a 2019 filing because 2018 was intended to be the final. I realize it is not a ton of work, but still.

Thank you both for your feedback. It is helpful to hear these opinions!

We have always been a TPA firm where each plan administrator handles everything and is expected to be fairly knowledgeable about most aspects of retirement plan administration, plan design, etc. At some point, we created a role for someone to handle all distributions and loans, which has now become two people due to sheer volume. We have continued to grow and hire administrators, some with TPA experience and some trained from scratch, both types of hires having various degrees of success and problems. We are now considering a reorganization where 2-3 of the most senior administrators lead a team, which would include junior administrators (we would have a different name for the position). Not sure if this would be a situation where the team leader handles all client communication and the jr. admins do the calculations, testing, valuations, Forms 5500, etc. OR if the jr. admins would handle a book of business separately with the team lead reviewing all work and also getting involved when there are larger issues, such as acquisitions, controlled group determinations, significant plan errors, etc. This is stemming from a few administrators simply not being able to organize and prioritize, while others may be very good at the technical aspects of calculations and testing, but simply are not great communicators. Do any of you lovely people have experience with both types of set-up, i.e. administrators each handle their own work or they "report" to a manager who is client facing, while they do the back-up annual administration work? If any of you has experienced both models, I would love to hear your pros and cons of each and struggles making a switch. Thanks!

Thank you Karoline & Bird. Anyone do it the other way? It probably doesn't matter much, but might be time to change my ways...

This should be easy... An employer has late deferral deposits in 2016 and deposits the lost earnings on all late 2016 deposits in 2017. I am reporting the total of late deferrals on the 2016 & 2017 Form 5500-SF on line 10a. Question - Do you show the "lost earnings" deposit in 2017 as earnings on the Form 5500-SF OR do you show it as an employer contribution? I have always shown as an employer contribution because it is a deductible contribution; however, I have reason to question this method. What do you do? Thanks!

Five companies have adopted a plan. There are three owners. Company A & B are owned 100% by owner 1. He also owns 33% of company C. Company A and C have negative self-employment earnings on the K-1. Company B is positive income. When combined, the net income is negative. Can he defer from the positive compensation earned through Company B? I think the other way to ask is - do I consider the compensation from Companies A & C to be ZERO or do I actually use the negative number when determining 415 compensation? Thanks, Kathryn

A plan is an owner only plan until 8/1/2018, at which point an employee become eligible. The owner has an individual brokerage account, but, starting 8/1/2018 and in going forward, all new contributions will be deposited into individually directed accounts at one of the larger online providers. The owner's brokerage account balance will be transferred to his new account at the new investment provider, but this will likely not occur until September. Is a blackout notice required? It is no longer an owner-only plan, so blackout rules should apply, but the owner is the only participant affected by the blackout, so it seems unnecessary.

I am probably overthinking this one... A plan has individually directed accounts at American Funds. We provide full fee disclosure relative to those accounts. They also have some profit sharing money pooled in a brokerage account. We have always disclosed a $75 distribution fee on the American Funds disclosure. For the pooled account, we are now going to start using Penchecks for the distribution processing,. They have a $35 fee that will be charged on top of our $75 fee. This additional fee will only apply if the participant had money in the pooled account. Do I need to include this fee on the 404(a)(5) fee disclosure notice? I think not because 404(a)(5) rules do not apply to pooled accounts, but I am not sure since this plan also has individually directed accounts. I'm just not sure about anything anymore... Thanks!

Thank you all!

I have a client that would like to change the hours required for a "year of service" for both eligibility and vesting from 1,000 hours to 750 hours. For eligibility - I believe that, as of the effective date of this change, we will need to allow all employees to enter the plan if they have worked at least 750 hours in a year, even if it was a long time ago. For vesting, do we need to adjust vesting based upon prior years of service during which an employee worked 750 hours (even if they were not in plan and/or did not work 1,000 hours)? I would think not. I would prefer that the reduction in hours for a year of vesting service is applied on a prospective basis. Thank you!

Thanks! That seems to be along the lines of prior threads. So, both plans will be plan #001 and both will have an effective date of 6/01/1984 (original eff date for plan A). Both will be restated as of 8/1/2018. This makes sense. Company B's plan is NOT a new plan. If anyone disagrees, let me know. Thank you!