CuseFan

Sounds more like she decided to keep his balance in the plan and not even offer a distribution. If the employee terminated then that's the opposite of being nice. Also, with a balance >$5k, it was HIS choice to make to keep balance in or take it out. As ESOP Guy hit the nail on the head, the question is a facts and circumstances "was there a termination of employment?" How was it recorded in payroll, was the person offered COBRA, were any other termination of employment benefits offered? If the facts and circumstances and plan provisions steer to not fully vesting but the employer wants to do so, the plan can always be amended to provide such assuming this was not a highly compensated employer.

The plan's named Trustee has responsibility for delivering asset reporting to the Plan Administrator, the frequency can be monthly, quarterly or annually as needed by the PA (or its designated/contracted TPA) to properly administer the plan. The Trustee and Plan Administrator could, but need not, both be the Plan Sponsor. If the Plan Sponsor is neither, it still has the obligation to oversee each in fulfillment of their fiduciary duty. The consequences of lack of required financial reporting is a fiduciary lapse. Participants are not required to keep (or provide) copies of their own brokerage statements any more than they are required to keep their "regular" quarterly statements. It's a good idea but not a requirement.

I wasn't recommending just a prospective fix, merely stating it as an option. There are always a number of options, including those we do not recommend, we need to explain the ramifications of each.

Or to put it another way, play a game of audit roulette.

You don't say what the prior document had for that provision, so this might be a forever lack of compliance. However, why would a 403(b) plan have a 3% SHNEC (without a match) when there is no ADP testing? Assuming no matching contributions have been made, having that provision is not the problem. The issue is whether the document, in its current form, supports the 3% contribution. Maybe there is an discretionary QNEC provision that supports this, whether an adoption agreement selection or a plan default option. If not, I suspect the proper correction is a VCP to ask for retroactive amendment for compliant provisions, or the employer could decide to amend the plan prospectively and hope IRS doesn't look at the past as they struggle to manage their current (8955-SSA) and future (SECURE et al regulations) issues while dealing with a potential government shutdown later in the year.

Isn't it up to the Employee to catch and then request from which plan they want the refund? It's not up to the Employer to fix, it's only the Employer's responsibility to distribute the requested excess amount when requested by the Employee.

Agree and Yes, so it's always the important first step to RTFD because in 99.9% of routine administrative circumstances the document will tell you exactly what you need to do, and know that sometimes you need to check more than one section or definition.

How is that 80% paid to her, via a W2 with taxes withheld or a 1099 as a contractor? Since grant is paid directly to the administrator, it might be self-employment income to her in which case she may be able to do her own retirement plan on that income. Who "owns" the grant, the individual or the school? If she leaves does the grant go with her or does it pay her replacement? It seems like she owns the grant, otherwise why wouldn't it be paid to the school which then uses to fund that 80% portion of her salary? Need to know which rabbit hole we're going down first before we can get to a useful answer - and not just my questions or Peter's, all of them.

ESOP Guy is spot on - not unexpected for an ESOP related question. Nice to have knowledgeable specialized contributors on this forum!

My supposition is that this gets done during the compensation/total rewards package negotiation pre-employment when the contract is hammered out, an initial one-time event before employment actually begins, and not subject to change (i.e., can't get cash for what match would have been) if person decides not to defer. I don't disagree with CBZ (or Luke) as we're talking apples and oranges.

Thanks, I was in there but not looking in the right place. Must appreciated.

Yes, you can defer on compensation that is not yet available to you (i.e., pay date), but read and follow the plan document as Bri alluded.

Does anyone know what the IRS user fee is for requesting a change in funding method that does not get automatic approval? It is classified as a letter ruling request but the fee schedule does not specifically show changes in funding methods and actuarial assumptions. I see changes in accounting method at $11,500 and then all other requests at $38,000 - big difference. The IRS does not make this easy!

First, the 6% deferral is part of their salary and a piece that they have control over on a payroll period basis. So if the total negotiated compensation is $100,000 (forgetting about the match for now), the $6,000 deferral does not reduce compensation for other contributions and benefits, it only reduces taxable compensation. Employer contributions are not considered compensation so there can be no employee election, otherwise you have a cash or deferred arrangement (i.e., more 401(k) deferrals). However, as part of initial negotiation and setting starting compensation, I see no reason an employer could not assume the employee will defer 6% and get a 6% match. Say starting pay would be $106,000, and match of $6,000 is assumed in the total rewards package such that compensation is started at $100,000 - and that should be locked in, if they decide to not defer (or to stop) they don't get that match in their pay. I think a dig into the 401(k) regulations and definitions of what is a salary deferral and what is a matching contribution will clear that up. A match being an employer contribution contingent upon the employee making a salary deferral. Your client wants to also make it contingent upon/resulting in a reduction in pay.

with an 11g amendment - although you didn't say if this was just last year or ongoing for a number of prior years

If a 5558 was not filed by 7/31, your next option is to check if the corporate (or personal) tax return was put on extension, in which case the 5500 can be extended on that basis, but you'll need a copy.

I think the person's 415 limit (100% FAE or max $ actuarially increased) is determined without regard to the prior distribution, then once that is determined the person's applicable 415 limit is offset by the actuarial value of the prior distribution. I'm not an actuary, nor do I play one on TV, and also did not stay at a Holiday Inn Express last night - but I do work with a lot actuaries.

Agreed - cheers!

I was going to suggest as well, but figured it wasn't an option because it is an obvious one that wasn't even mentioned. Regarding non-safe harbor hardship, my thought was applying such criteria to loans, not withdrawals. So if someone has a (subjective) hardship where they can't get a distribution they could still get a loan. This would likely minimize usage and give the employer/plan administrator some discretion - but with that, added responsibility.

Statutorily, could probably amend loans in and out in a vary narrow window, but I'd think about a better way to handle if at all possible. Technically, there would need to be an SMM for each amendment, which might create an HR issue. If you say no SMM is needed because, at the time required, no actual change to SPD language is in effect - I don't know if I'd want to argue that with DOL. I know it's an NHCE and the intentions are good, but doing such an amendment and (most likely) hiding it from everyone but the lone target just doesn't smell right. As gets said in this forum all the time, just because you can do something doesn't mean you should. I'm more concerned with the HR and overall employee relations issues that could come from this as opposed to any plan compliance problems - how come Johnny could get a loan last week/month/year but I can't? I've got a sob story too. Maybe allow loans for broader non safe harbor hardship reasons?

and some have one year hold out with retroactive re-entry, which doesn't really work with 401k plans

So, and I may be oversimplifying but it's Friday afternoon and a cold one is calling my name, the sole prop contributes $50,000 for example and say $1000 is attributable to the life insurance benefit, (s)he can only deduct $49,000 so there is no reporting of the $1000 PS58? Cool, I learned something today! Now about that cold one ... hope everyone has (or had if you're reading Monday) a great weekend.

Employed on annuity starting date = in-service distribution no matter how you slice it.

You're talking DC plans, because DB 415 limit is based on calendar year in which the limitation years begins, correct?

Disagree - by that reasoning the person could be rehired a year but because they had a previous distributable event you would still pay them out? If the person is employed by the plan sponsor (or control group member) when the distribution is paid then you have an in-service distribution subject to those rules. And the timing described sounds like a "oh, I'm getting rehired so I better get my 401k money out while I can" but oops, acted too late. We see people try to play these games in DB world all the time.