parks777

Thanks to everyone for the input. I believe that we have handled everything as required for the EPCRS correction of the over-allocations. We communicated to him at the time that portion of the distribution was ineligible for rollover and would cause tax issues if left there.

No - he was an HCE. About $8k.

In my effort to not waste your time with a wordy original question, I guess I moved too far in the other direction - sorry! Early in 2017, we discovered that we had mistakenly used wages above the IRS Annual Compensation Limit in calculating the employer profit sharing allocations in prior plan years. This impacted 4 people - 2 current employees, 1 retiree, and 1 former employee who left the company in 2015 and rolled over his plan balance to an IRA. We did all of the forfeiture calculations and deducted the proper amounts from the first 3 individuals' account balances in the plan, but since this 4th person no longer had any funds in the plan, we instead sent him a letter letting him know that a portion of his rollover was not eligible and should be returned to us. He chose not to return these funds, so we let him know that he may have tax consequences from that decision. We now have a small project that we would like to have this person perform as a subcontractor, and I was wondering if the fact that we would be paying him would cause any tax issues based on the history. If that is still not clear, please let me know!

Background: We processed a forfeiture last year that impacted 4 individuals. Three were still plan participants so we deducted the forfeitures from their account balances, but the other individual was no longer an employee and had already withdrawn his account balance. We sent him a notice, but he did not repay the forfeiture. Now: We are considering having this individual do some future work on a subcontractor basis, not as an employee, so not eligible as a plan participant. Question: Are there any implications for us making future payments to this individual given that he failed to repay his forfeiture?

Thanks for that clarification. Any thoughts on whether an amendment executed after 12/31/2016 but before the 2016 contribution is calculated or paid can be used to impact our 2016 contribution?

As previously stated, we have had three plan documents since inception for this plan. The original document was signed in 1993 and had the following option checked: "Integration with Social Security. The Employer Contributions for a Plan Year shall be allocated to the accounts of Participants eligible to share in Employer Contributions for the Plan Year in accordance with the procedures for Social Security integration set forth in the Plan. The Plan's Integration Level shall be equal to the Social Security Taxable Wage Base." Our second plan document was signed into effect in May 2010 and had the following option selected: "Base Integrated Contribution Formula: The Employer's contribution shall be allocated as an amount taking into consideration amounts contributed to Social Security using the two-step Base Integrated Allocation Formula as described in the Basic Plan Document." When we switched to our current TPA (effective 9/2015), our intent was to keep all provisions of the plan the same, but the following box was mistakenly checked: "Pro-Rata Formula: Employer Profit Sharing Contributions will be allocated to the Individual Accounts of Qualifying Participants in the ratio that each Qualifying Participant's Compensation for the Plan Year bears to the total Compensation of all Qualifying Participants for the Plan Year." Not realizing the error, we calculated the 2015 allocation based on the two-tier integrated formula in continuation of our longstanding process. I'm not sure what you are asking here. What do you mean by "satisfied those requirements"? This seems to be a classic case of a scrivener's error to my non-lawyer's mind, but will definitely take your caution to heart.

Correctable through retroactive amendment or through correcting the allocations? I'm trying to get our ducks in a row before approaching the TPA so I know what the options are and can understand what is possible.

In mid-2015, we switched to a new TPA and therefore adopted new plan docs. In the process, the wrong box (Pro-Rata Formula) was checked for our Employer Profit Sharing Contributions rather than the Integrated Formula that had always been used. We actually calculated the 2015 proift sharing allocation using the integrated method. This plan doc error was only discovered in the last week while researching another process error. I have a few questions about how to correct, but don't know what is allowed: 1. Can we make a retroactive plan amendment to correct the method and leave the 2015 calculation alone? (What provisions/regs apply to retroactive amendments?) 2. If not, I assume the only alternative is to go back and use the pro-rata approach for 2015? 3. If we execute an amendment immediately (January 2017), do we still have to follow the existing plan doc for the 2016 contribution that has not yet been calculated? I don't know if it sets any precedent for administering according to the plan doc even when errors were discovered, but we corrected another similar error found in mid-2016 regarding last-day requirement for PS eligibility, and in that case we did make a contribution for the employee who left mid-year. Thanks for your assistance.

Thanks for the guidance and help!

Again, I am a total newbie to this, so hopefully this is not a stupid question. Do we have an option under the EPCRS rules to reallocate the overage paid to the HCEs to other participants so that the total contribution for each year is the same, or are we instead required to simply force out the overages from the HCEs as non-qualified money? Is there any way to avoid a taxable event to either the firm or the participants?

I'm still getting past records together, but it might be a multi-year issue. Another complicating factor is that we have had three TPAs over the life of the plan, so it might be tougher to get our current TPA's assistance to correct things going back in time.

I have had discussions with the HCEs and all are agreeable to do whatever it takes to get things in compliance. However, we are a small (10 person) firm and don't have anyone on staff who is a benefits specialist. Any suggestions on getting help in processing the corrections under EPCRS to make sure that it gets done right?

Not sure about this terminology, but the past formula that we have used is x% of total compensation + y% of (total comp minus SS wage base).

Thanks for these responses. We are a small firm and have always done the allocation calculations internally in past years. This is the first year that I've been a part of those calculations. We did always use the appropriate maximum each year (i.e., the $53,000 for total contributions for 2015), but I think our allocation formula for profit sharing among employees used compensation above the $265,000 limit. If so, do we need to go back and correct this somehow?

It has been stated many times that employer matching formulas must cap the match at the annual compensation limit ($265,000 for 2016). However, I cannot find any guidance as to whether a formula for a discretionary employer profit sharing contribution can consider compensation in excess of that limit. Our plan documents do not address this issue either way. I apologize if this question has been asked and answered previously, but I could not find it in my search. Thanks for any help that you can provide!