Renafesq

I have a client who failed the ADP test. No NHCEs contributed to the plan (the vendor did not disaggregate the client's two plans; one is for NHCEs and the other consists mostly of HCEs). At any rate, does anyone know how to determine the highest permissible ADP for the HCE group in this instance? There are only 4 out of 5 HCEs who were contributing to the plan. TIA

Thank you so much.

I have a non-profit client that provides a very rich taxable reimbursement program for its C-Suite. They've been doing this for over 30 years. They provide annual amounts for which the execs can submit claims for reimbursement that vary based on title (CEOs get $80k whereas a VP may receive $20K). The reimbursement amounts are not limited to medical claims. For example, execs can get reimbursed for payments to his mother's nursing home payments, CPA fees and legal fees. There is no written plan, and only about half of the execs actually utilize the full benefits each year. There are some who have never submitted any reimbursements. Because of the medical reimbursement, I'm certain there are GHP and ERISA implications as well as nondiscrimination issues under Code section 105(h). I've suggested to the client that it's better to provide the amount as a discretionary cash bonus because of the medical reimbursement component and because the amounts are already taxable. I'm receiving push back because the client has been advised that since the benefits are taxable, then the above ERISA, GHP, and 105(h) implications do not apply. They also do not want to actually commit to a specified bonus amount for those who have not utilized the funds. Is there anything else they can consider that wouldn't raise ERISA and other GHP issues? Am I making a mountain out of a mole hill? Would there be nondiscrimination issues since the benefits are taxable? Thanks in advance.

Does anyone have any insight on Curaechoice? It appears to be a medical provider network entity that contracts directly with employers. Also, I've read a few articles regarding these entities as well, some pro and some against these type of contracts. Does anyone know whether there is any IRS guidance on these entities? From what I can tell, as long as the entities are following employee benefits laws, there should not be any issues. There is a guest article in benefitslink that I reviewed, but I cannot tell how long ago the article was written. Thanks in advance.

Hi there everyone. I was researching a similar topic regarding correcting via back wages and whether there is also a corresponding correction to the 401(k) plan and stumbled upon this thread. I am wondering if I could get some of you to weigh in on my client's current issue. We have a client who recently discovered that it failed to pay overtime to several employees for 3 years in violation of FLSA requirements. To correct, the FLSA requires back pay for the missed overtime pay plus liquidated damages. The back pay will be reported on the 2024 Forms W-2 as supplemental wages. The employees will receive a 1099 for the liquidated damages. A question arose as to whether the missed 401(k) elective deferrals and employer matching contributions should be made for the missed overtime pay (which are basically supplemental wages) for 2024 only or whether there is a required corrective contribution for the missed years. Initially, I recommended a 50% QNEC and a 100% employer matching contribution (both adjusted for earnings). To me, this would be the conservative approach as the IRS could interpret that this would be correction for the 3 years no contributions were made (other issues arise for terminated employees). However, Rev. Proc. 2021-30 does not provide an approved correction or examples for wages that were not received in the prior years and therefore the elective deferrals and match were not applied. The only correction that is considered in the Rev. Proc. is when the wages were actually paid, but the elective deferrals and matching contributions were not applied in previous years. The client's general counsel seems to believe that corrective contribution is the correct approach based on the above mentioned Code section 415(c)(2)(g)(8). However, I'm now thinking that there is no requirement for a corrective contribution since the wages are now being paid in 2024. I think these wages should be treated as an extra payment in the employees paycheck and, instead, the employer should apply the active participants' elective deferral amounts (deducted from the 2024 payment) and employer matching contributions to their accounts. In other words, treat the back pay similarly to a bonus. However, the terminated employees would not have any elective deferrals or matching contributions since they are not actively employed and have not completed an hour of service. Note that the plan document does not utilize the section 415(c)(2) definition of compensation.

Ok. That clarifies a lot for me. Thank you SO much!

Thanks Luke. My Question isn't about whether an earlier retirement age in a governmental plan is acceptable. I didn't provide those facts bc they aren't relevant to my question, so my apologies for being unclear. I'm wondering if my client can rely on Q&A 2 of that coronavirus related guidance I included in my question, which allows an in-service distribution at age 59 1/2 or the plan's normal retirement age. My client's plan has a NRA of 53. Q&A2 states the following: A qualified pension plan generally may allow individuals to commence in-service distributions if the individuals have attained either age 59½ or the plan's normal retirement age. Is this still good or has this now lapsed? If it is good, can my client rely on this to allow an employee who is age 53 to take an in- service distribution? If it has lapsed, can you show me where I can find proof that this has lapsed? TIA

Does anyone know whether this guidance is still reliable? I thought there was a sunset on this, but looks like it may still be applicable. Specifically, I am wondering if a governmental employee may take an in-service distribution before age 59 1/2 since the plan allows for earlier retirement age (age 53). (See Q&A #2). TIA https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers#:~:text=Q2%3A May a qualified pension,the plan's normal retirement age

Sorry, you're right, it was the 2021 return (non-calendar plan year) and there were allowed some extensions due to federal disaster. I initially advised two choices: 1- file it late under delinquent filers or 2-file without the auditor's report to see if that could buy them some time, knowing that the DOL would kick it back and grant an additional 45 days to refile penalty-free. This audit has been going on since September 2022, so we're not confident about how soon to expect a closing letter. I think they can just file again with the auditor's report and just amend it post closing letter. I was just wondering if anyone had dealt with this issue before. Thanks for engaging.

Hi JustAnotherAdmin, Yes, the IQPA auditors are refusing to issue their report while the IRS audit is ongoing. The IRS audit includes the 2022 plan year, which is the year of the Form 5500. But, I've been able to resolve this issue. Our stance is that the IQPA auditors need to send the report. Failure to do so would cause the plan to incur penalties. Our client can correct the Form 5500 once the IRS audit is complete (provided it is not later rejected).

Hi Lou, Yes, the auditors are refusing to issue a report due to the IRS audit. Also, the IRS has included years through 2022, the year for which the Form 5500 was submitted.

Hello, My client is undergoing an IRS audit. They filed a Form 5500 that requires and IQPA auditor's report, which was missing since the IRS is auditing the plan for issues in compensation utilized to determine benefits. My client received a rejection letter from the DOL. Any ideas on how to respond if the IRS has not completed its audit within the 45 day timeframe? I'm thinking that they should send the rejection letter to the IRS agent working on the audit and alert them of the ramifications of not correcting the Form 5500 in time. Thoughts? - Rena

Hello, Does anyone know whether the contributing employers of a multiemployer welfare plan are still responsible for an ESRP if they are unable to provide benefits to their full-time ees and dependents? Would the fund/contributing employers still be required to provide coverage or face penalties? I took a look at IRM 5.9.4.1 which discusses bankruptcy and insolvency and ERSP assessments, but only when a 226-J letter has been issues either pre- or post-petition in bankruptcy. Does anyone know of any other regulations or guidance exists that discusses this topic? My initial thought is that generally an employer, including a multiemployer, is not required to offer coverage. However, if the multiemployer is an ALE and does not offer coverage to its full-time employees and their dependents, then the employer will be subject to an ESRP. According to the IRM, the ESRP excise tax can be included as either a pre- or post-petition, depending on when the ESRP assessment is made. However, the IRM does not discuss whether a multiemployer's insolvency absolves the employers from offering the requisite coverage to its FTEs. Thanks in advance.

One more question, but does it matter whether the co-pay is a flat dollar amount or a percentage? The client seems to believe that the copayment for medical coverage post-deductible must not be a flat dollar amount. I couldn't find any guidance that says the post-deductible co-pay for medical services must not be a flat dollar amount.

Thank you so much, Brian. -Rena