401(k)athryn

I have a plan that includes two members of a controlled group, companies A & B. They will be splitting the plan to avoid a 2019 audit, which they can do because they are very much two separate companies and two locations. They will need to be tested together still because they are still a controlled group. The existing plan, covering employees of Company A, will continue to exist, but will be restated as of 8/1/2018 to edit a few details and remove the adopting employer. There will be a new plan created for Company B and assets will transfer to the new plan. 1) Am I correct in calling this a spin-off? 2) Does this new plan get to be #001 or is it now #002? I would think #001 because it is the first plan for this particular EIN (of Company B) because Company B was merely an adopting employer of Company A's plan and, therefore, did not have their EIN reported on the Forms. 3) I read a thread that seemed to indicate that the new plan should be a continuation and restatement of the existing plan. How can that be if the existing plan is continuing to exist. Do you restate the existing plan and into two separate plans? Thank you! Kathryn

We provide a notification listing the profit sharing amount allocated to each group in the cross-tested plan, but advise the client that they do not need to sign if they already have a corporate resolution on file.

The plan must provide that the trustee be given written notification from the employer as to the amount of the contribution to be allocated to each group. As a TPA, an email from me to the Trustee with a report would not meet this notification requirement.

Thank you, Golfer. I appreciate everyone's input.

Thank you!!!

Thanks, I think! We are very specific about transaction fees for loans and distributions in our 404a-5 disclosures, just not admin fees. For our sponsors pay out of pocket and always have and always will, there is no issue. For those that pay consistently out of the plan, it has been included in the 404a-5. I am concerned right now about those plan sponsors that choose to pay one time from plan because I do not think we have always disclosed this to participants other than vague language about TPA admin fees that might be charged (with no $ or formula). Honestly, I don't know that it helps a participant to know what the exact dollar amount of admin fees will be because they will be applied pro-rata and; therefore, will be based upon balances and also may be based upon the number of participants, so the employee reading the 404a-5 will not actually know how much is going to be charged to their account, just the amount that MAY be charged to the plan as a whole. RatherbeGolfing - We use mostly platforms, such as John Hancock, American Funds, Principal, but I don't see how this makes it easier to disclose admin fees.

We always notify the plan sponsor of the contributions by money type as well, when we first provide options, but I don't think this system generated spreadsheet is sufficient to meet the requirement. Tom, Can you tell me if I can combine the safe harbor and profit sharing when preparing this memo? Can we reference an attachment,which provides the dollar amount of profit sharing per person? Either of the above would make it much easier to meet this requirement. Thank you! Kathryn

A plan decides upon a profit sharing contribution for 2017 that allocates a different dollar amount and percentage to each participant. This complies with the cross-tested formula in the plan document and passes testing. When preparing the notification from the employer to the Trustee (see Padilla memo), do we have to list each employee separately? Can we refer to an attachment, which would be our allocation spreadsheet? Alternatively, can we combine the 3% safe harbor and profit sharing when referencing the amount on the trustee notice? This would make it much easier for this plan. They basically were trying to allocate a set dollar amount to certain employees, but it is a combination of the 3% Safe Harbor and profit sharing, so the profit sharing is all over the board due to differences in compensation.

Thanks all! So, are you saying that we need to disclose actual TPA fees in a dollar amount or formula that may be charged instead of simply saying that there are TPA fees (with no specific amount) that could be deducted? This makes sense, but is not how we have done it in the past except when we know that a plan sponsor is paying from the plan on a continual basis. Most of our plan sponsors pay outside of the plan, but I think you are saying that the disclosure should reflect the fees that MAY be applied to participant accounts (even if unlikely). Are you all doing this?

My understanding is that TPA fees can be paid from participant accounts on a pro-rata basis. In some cases, this is done on an ongoing basis in the form of a monthly, quarterly or annual deductions. In other cases, we (as a TPA) will deduct a one-time fee to apply toward annual admin costs and then resume our billing directly to the plan sponsor on an ongoing basis. If we are charging the participant accounts on an ongoing basis, we will include a specific dollar amount or basis points on a 404a-5 fee disclosure notice. If not, our fee disclosure will simply say that a plan sponsor may pay the TPA admin fees or it may be charged to their account. 1) When deducting from an account, must the fee disclosure notice reference a specific dollar amount or is okay to simply state that TPA fees may be deducted? 2) If we must specify, it is okay to be in the form of basis points rather than a dollar amount? 3) Is this required even if the payment from the plan accounts is just a one-time payment and will not be ongoing, keeping in mind that the participants will see the fee on quarterly statements? I ask because I have just done a few of these and did not provide an updated 404a-5 notice to reflect this one-time payment. I cannot imagine having to do this every time an employer wants to pay from the plan. Thanks!

Pam - I will check on the possibility of the vendor restricting this money from being available for an in-service withdrawal because it is an after-tax source. That could be it!

Thanks everyone. I forgot to mention that this is a 403(b) account. It is not a plan that I administer, but I expect that it might be a "policy loan". Do you think this makes a difference with regard to withdrawal restrictions? I realize that I may only be able to help an advisor figure this out of I have a copy of the loan policy.

Client took a loan, which subsequently was deemed. Five years later, he paid it back so he could take another loan. The client is 59 ½ and tried to take an in-service distribution of the remaining account value. He was denied the full distribution amount due to the deemed amount that was paid back not being eligible for in-service withdrawal. Has anyone heard of this before?

Works for me. Thank you! I'll just have to make a note to remind myself to add the 3% in deferrals when I calculate the match early next year. I appreciate your input!

Tom - Thanks! So, let's say the employee's compensation from 1/1/18 through the end of error period is $10,000. The missed deferral is 3% of pay ($300) because that is what EPCRS dictates when it is a safe harbor match plan. The QNEC for the missed deferral is 25% of the missed deferral, which would be $75. This is somehow adjusted for earnings. I am fine with all of this so far. If the match is not actually made until after the year, then I suppose it is not "missed", as you say. When calculating the 2018 match in January/February 2019, I would use actual full year compensation. Question - Would I use actual deferrals (as listed on W-2s) PLUS the "missed deferral" of 3% when calculating the safe harbor match for these participants?

A plan has a safe harbor match allocated on an annual basis. The client has realized that there were 4 employees eligible on January 1, 2018 who have not been given the opportunity to defer. I will advise them on the correction under EPCRS, which is a 25% QNEC based upon 3% missed deferral and a missed SH Match plus earnings. They will notify employees as required. Question - Is the compensation based upon compensation from 1/1/2018 through the date the employee is given the opportunity to participate? I would think yes, but when I calculate the annual safe harbor match for ALL employees at year-end, this portion of compensation will be included in the calculations. It would seem as though the affected employees will get matched on this compensation twice. Is that how it is meant to work? Thanks!

Thanks, Mike! Would love to do SCP for both. If anyone has an argument for why either situation should go through Voluntary Compliance, let me know.

John - I would say SCP is fine in your example. In addition to John's scenario above, I would like to see if opinions differ for my two real life examples: 1) Plan includes two owners and one employee. Safe Harbor is not allocated to HCEs, so only the employee is owed the safe harbor for 2016. I would say this is an SCP correction except for the added detail that this error also occurred in 2013, so could the IRS argue that they failed to put systems in place to avoid the error? Would this be best as a VCP correction? That would not be ideal since the cost to submit via VCP would far exceed the missed safe harbor contribution, which would be deposited with earnings regardless. 2) Client with about 50 eligible employees did not deposit 2016 safe harbor contribution. They were well aware of the 12/31/2017 deadline but did not have the money to fund. They still do not have the money to fund, but if they were to make the deposit now with earnings, is that a complete correction (SCP) or would we need a VCP submission since they did not just forget to make the deposit? The business is shutting down, so a business hardship exists, but I don't know if that can be a factor when determining if SCP or VCP is appropriate.

Restarting this convo about failing to make a safe harbor contribution by the deadline (as opposed to the one about lasagna and tomato sauce)...can someone explain to me why SCP is not an option and VCP would be necessary? Is that specific to this original example? I have two takeovers clients (not related) who did not make their 2016 safe harbor contributions yet. Neither has a good reason. In addition to making the required safe harbor deposits as soon as possible and adjusting for lost earnings, do we need a VCP submission or can we self-correct? Thanks!

Thanks, Mike! That is a good extra tidbit.

Thank you both! I will have Company B adopt the plan. Leased employees are excluded from the plan.

Company A and Company B are a controlled group. Company A sponsors a 401(k) Plan. Company B's employees are all paid through Company A on W-2s and are included in the 401(k) Plan. I know that Company B can co-adopt the plan, but are they required to do so? It would seem to me that these employees, since paid by Company A, would be covered regardless of whether Company B adopts and may even be considered Company A employees. This may come down to a "Who's the Employer?" question. I realize that there is no harm in Company B adopting the plan and I will recommend this, but I need to know if there is any reason that it would be required in order for these employees (who technically perform services for Company B even though paid by A) to be included in the plan. Any thoughts?

My 2 cents - THANK YOU!

In this case, the Trustees are the owners of the company and are the plan sponsor. Same same. MoJo - The expense is a deconversion fee that Newport Group charges when a plan leaves to go to another investment platform. I don't know the amount because it is not referenced in their deconversion form (typical). Their deconversion form allows the plan sponsor to choose to pay with forfeitures and I want to be sure that this is acceptable.

Is the cost of conversion from one investment platform/recordkeeper to another considered a settlor expense? I think not, but want to confirm since it is a Trustee discretionary decision to move the plan's assets.