RatherBeGolfing

No

If I lost out on $10 in earnings because the plan sponsor did not deposit what it withheld from my paycheck, how can giving Dave $10 be a reasonable correction?

I agree 100%.

From the SF instructions

There really isn't another reasonable option. Each late deferral is entitled to the lost earnings associated with that deferral. No. It is pretty clear that you can't give the lost earnings owed to one participant to another participant, simply because it is more convenient. Doing so would not make the participant who suffered the loss whole, which I would interpret as an incomplete correction. You could try, but I have seen more reasonable "short cuts" shot down in VFCP applications in the past. What I have done on VFCP apps with 100s of participants in the past is to calculate the lost earnings for each payroll as a whole, and then attaching a spreadsheet allocating the earnings for each late payroll date proportionate to each participants part of the total late deferral for the payroll date. It cuts the actual lost earnings calculations down to the number of problem payrolls rather than for each participant, and the spread sheet is pretty simple to set up. The bigger problem is what do you do with the participants who have left, and now have a balance of less than $1. If possible, I would ask the plan sponsor to eat the distribution cost and send the participants what they are owed. Of course, that may create another issue with lost or recalcitrant participants, but I think that is a separate discussion.

This doesn't doesn't really make sense. The 7 business day safe harbor clearly does not apply at all for a plan with more than 100 participants, so why is this even part of the discussion if the plan was a large plan on 1/1/17? Just correct it. I have never seen the DOL or IRS follow up with additional penalties and interest for a late correction that was initiated by the plan sponsor. Also, don't forget the VFCP or you may get a love letter from the DOL.

And if we could get rid of those pesky deadlines....

Agreed. Using the facts from the OP, 2018 is not a required distribution year.

@Appleby The ERISA Outline Book by Sal Tripodi

Hope you are doing ok over there Larry.

Here is what the EOB says RMD has to be taken out if it is a required distribution year. Since she is still employed, an RMD is not required for 2018. If she terminates during 2018 after the distribution has been made, 2018 will become a required distribution year, with no assets left to make the RMD. If that happens, the distributing plan is still treated as having satisfied its minimum distribution requirements, but the the recipient plan will have received an invalid rollover amount.

Yea its one of those areas where just because you can do it doesn't mean its a good idea...

Sure it can. If I have age 21 and 1 month of service and change it to age 21 and 1YOS those who have not met age 21 and 1YOS are excluded until they meet the new requirement. I'm not 100% sure if the same applies to a change in entry dates but I can't find a good reason why it wouldn't.

What about the folks hired in July and entered on August 1? Quarterly entry dates are still earlier than the statutory requirement, so they should be able to exclude them as well. Im not sure what they will gain by excluding them for 10 days, but I still think the could if they wanted to.

It is also a good idea to let your clients know that they will most likely get a late notice even when they are entitled to the tax relief, and to forward any such notices to you ASAP so that you can respond. We got a bunch of those after last year's storms for taxpayers who should have been "automatically detected" by the IRS

Since you have never filed a 5500, does the government even know the plan exists? Did you file for a determination letter? Even with a det letter and no 5500, I think the chances of an audit are pretty much non-existent. I would wait and do it all at the same time.

Sort of. 411(d)(6) protects the right to benefits that are already accrued, not the right to accrue future benefits. So, a participant could be excluded until they meet the new eligibility. For a change in the current plan year, you cannot take away the right to a benefit that already accrued when the change is made.

Perfect. Thanks Mike

Yes you are correct. Its fewer than 100 at BOY and 80-120 rule does not apply, so you could have a small plan audit exemption but not qualify for the 7 day safe harbor under §2510.3-102(a)(2) EDIT: You are correct in questioning the 7 day safe harbor for a plan with 100 or more participant at BOY. The timing of the deposit could still be reasonable, you just can't rely on the safe harbor.

This is sort of a follow up question to a recent post on funding deadlines. - Client has a calendar year 401(k) plan with a SH match, no profit sharing contribution in recent years. - Client initially wanted to do SH only for 2017. 2017 corporate return was filed with the deduction for the SH match. - Client now wants to reconsider the profit sharing allocation for 2017, but the CPA has some concerns since they already finalized the 2017 return and would need to make the deposit today in order to deduct it for 2017. I'm considering the available options and the first that comes to mind is to make the contribution sometime between now and 10/15, which would let me allocate and count the PS for the 2017 annual additions but take the deduction in 2018. If I do that and max my principals out at their 2017 annual additions, I can still max them out for their 2018 annual additions and deduct both in 2018 as long as the total contribution deducted in 2018 (2017 PS and 2018 annual additions) does not exceed 25% of 2018 covered comp right?

so between 9 and 23 business days from pay day? As long as none of the deposits went past the 15th business day of the month following and the employer was unaware that the delay would be that long you probably have a pretty decent argument. If they knew ahead of time that it would take over 3-4 weeks between payroll and when they could make the deposit, they probably should have established a plan account for the deposit rather than let it sit in an employer account, and I would argue that that is a late deposit even with the change in recordkeeper.

No worries, you are certainly entitled to do things your way as long as you stay within the law and your clients are happy. I was just letting you know that your understanding of the rule is incorrect. Here is the thing, you are not required to take advantage of the 7 day safe harbor for small plans. If an employer wants to pay more lost earnings and excise taxes than they have to, they are allowed to do that. Using a company average for plans that cant take advantage of the safe harbor is common practice and is usually fine, the key is to document and being able to defend it if the government comes knocking. That is assuming that the company average is reasonable to begin with of course. Have a great weekend.

How late were the contributions? Also, I agree with Kevin that if they knew there would be a long delay between recordkeepers, the contributions are late.

You are getting the general rule and the safe harbor mixed up. The safe harbor for a small plan is that deposits made within 7 business days are deemed to be made on the earliest date on which such contributions could reasonably be segregated from the employer's general assets. You do not lose the 7 day safe harbor just because you normally deposit the contributions in 3 days. The general rule is that contributions have to be deposited on the earliest date on which such contributions can reasonably be segregated from the employer's general assets. Anything beyond what is reasonable is late. If a pattern can be found, say 3 days, anything beyond 3 days should be looked at to see if the delay was reasonable. Also, just because the employer normally takes 3 days doesn't mean that 3 days is reasonable if it could have reasonably been done in 1 or 2 days. There is also a maximum time period for deposits to be considered reasonable. A contribution that is deposited later than the 15th business day of the month following the month in which the contribution would have been payable to the participant in cash is by definition not reasonable.

The worst part is that SSA will probably still screw up and send out a "you may have some $$$" letter for each plan....