Luke Bailey

OK, so not really a merger, it sounds like, but still no need for a new adoption agreement. Employer B, which has an adoption agreement, simply has more employees.

Re the second part of your question, if it was really a merger and not some other sort of transaction, i.e., there is now just one surviving company that is the W-2 employer of all the remaining employees, you should be fine without additional paperwork. The nonsurviving company's adoption agreement is now a historical document and the surviving company's should be adequate without any change. Re the first, my understanding is that the IRS has taken the position that you have to adopt a plan before you can make elective deferrals under it. Here, there was a plan, but this employer had not yet adopted. I think that the IRS might take the position that the deferrals for the period prior to adoption are invalid. If so, you would need VCP to correct.

The student loan repayment would be taxable to the employee, right? So this would violate the anti-non-401(k) "cash or deferred" election rules. See 1.401(k)-1(a)(2) and (3).

Obviously I don't have all the facts but if this is an ERISA plan and through admin error did not properly apply the deductible, I think the plan should notify the individual telling them they are required to make payments back to the plan to true-up to what should have happened. A corollary would be that their HSA eligibility would then not be jeopardized by the error.

As stated, the negative FSA balance only effects your COBRA rights to the (nonexistent) FSA balance. This does not affect your rights to get COBRA notice, make election, etc., under the employer's insured or self-insured group health plan.

Agree with what ESOP Guy is saying. Have done these or similar many times over the years. You simply go back to each year with the error and ask, "What would this person have received if we had done it right, and when," and then give them that in the account, plus earnings forward from the date when they would have gotten it. (Note that if you have a comp to comp allocation method, you need to give them the percentage that the other folks got, not the lower percentage that everyone would have received if you had included these folks in the comp to comp allocation.) The vesting schedule would apply if they are not still employed. If the error does not go back before 2015, you are good to self-correct no matter how many participants are involved or amounts, under the "two plan year" rule for self-correction of significant errors. If go back to 2014 or earlier, then need to do VCP unless the error was "insignificant" (e.g., just a handful of individuals, e.g., less than 2 to 5 % of plan participants, less than 2 to 5% of contributions, different participants different years, etc., although 5% may be viewed as aggressive).

That works too, of course.

"Party in interest" for purposes of 5500 is defined on page 47 of instructions. It should be the same as in 3(14) of ERISA. If any of the plan's investments are issued, etc., by a party in interest, you put the asterisk. E.g., investment in employer stock, lease of property from employer or owner or member of family, lease of property from a service provider, etc. These investments (i.e., where you have to place an asterisk) are going to be prohibited transactions, so you should determine whether exempt or nonexempt.

The basic principle of a ROBS is that an individual who has a K-plan account elects to invest it in newly issued stock of the K-plan's sponsoring employer. It's a lot easier to do with a new plan of a start-up company and the individual in question is the only plan participant and has rolled over from an unrelated employer, but it might technically be possible with an existing K plan if the new employer adopts the K plan. The loan wouldn't matter. I doubt it would technically be possible with the existing company, assuming the plan participant owns the existing company. As to whether ROBS is a good idea, complies with law, etc., read Ellis v. Commissioner (an IRA case, to be sure), including the footnoted 4975(c)(1)(E) argument, and decide for yourself.

How about amend the plan for current year (2017) to make a one-time allocation as of 9/30/2017 of, e.g., 1/5th or 1/10th or whatever of amount to the lowest-paid 5, 10, whatever eligible employees?

401(k)athryn, sounds like the right decision on b(9) vs.(b)(7). The IRS says you don't need a written plan doc for church 403(b)(7) here: https://www.irs.gov/retirement-plans/written-plan-document-requirement-for-403b-plans. Good luck.

I did a VCP years ago to correct a systematic failure to apply 401(a)(17), and the issue never came up. I think I agree with Bri that the issue is not nondeductibility. 401(a)(17) is a qualification issue. If the not corrected, the plan would be disqualified and all contributions would be deductible, or not, depending on whether vested.

I'm not sure there is a clearly correct answer. Start with the 2017 RMD and assume the participant died on June 30, 2017, although the date in 2017 doesn't really matter. We're all agreed that if the participant took the 2017 RMD in the first half of 2017, he received it (duh) and, to the extent he did not dissipate it, it is, economically "in" his estate. But if he died in the second half of 2017, the 2017 RMD must still be paid, in the same amount, but then it would belong to the beneficiary, not the estate. Why is the 2016 situation any different? The participant could have/should have taken the 2016 RMD in 2016, but didn't, so maybe it too goes to the beneficiary? The answer might be clearer if the participant had requested the 2016 RMD to be distributed in 2016, and the plan had failed to execute. In that case, the estate's "contractual" (to use jpod's term) would then seem clearer.

I have inherited and restated plans that specifically say that the plan can buy an annuity to fund a retiree's payout. I have thought the language unnecessary, but left it in. Maybe the attorney in question thinks, by negative inference, that plans have to have the language. Wouldn't hurt to put it in, and include that distribution of the annuity lets plan off the hook, "fully, finally, without recourse, etc."

We include this in an Appendix to our SPDs, with pretty detailed instructions. I don't think there would be a fiduciary duty to reach out to the participant, but it wouldn't hurt to do that, except that whenever you interact with a participant there is risk of misunderstanding, mistake, etc.

401(k)athryn, I will try to answer your question (since no one else has so far), although 403(b) is not a large part of my life, and 403(b)(9) has not hitherto been any part of it. One question I would have for you is, why are you asking? But, that said (or asked), I think that 403(b)(9) is in the Code to allow churches and related organizations to maintain plans that are not necessarily restricted to individual annuities and custodial accounts, but that could, for example, be a defined contribution plan with a trust. But it could, of course, be invested sdolely in mutual funds. But if you have a document that describes individual custodial accounts, it is likely intended to be a 403(b)(7). You might check to see whether the plan document and related custodial agreement(s), if separate, require(s) investment in mutual fund shares. If it permits other investments, or if you have a trust document that permits other investments, then it must be a 403(b)(9). If it does not, it is likely intended to be a 403(b)(7), as would also be implied by the fact that it is apparently lacking the 403(b)(9) designation in the plan document as apparently required (in some fashion) by Treas. reg. 1.403(b)-9(a)(2)(ii).

Agree, probably. But PT risk, not theft. We're talking Titles 26 and 29, not 18.

As NJ Mike points out in last post, the IRS service center is supposed to pick up the aggregate excess deferral across all unrelated employers from the multiple W-2's and the individual is taxed on the excess in the year of deferral and in the year of distribution (because you don't get basis for what was taxed in the year of deferral). The only way out for the individual is to obtain a distribution of the excess by April 15 of year following year of deferrals. The plan document is not required to provide for distribution of excess deferrals, but most do, if requested, and of course the individual needs to understand the rules, identify each of the plans that he/she deferred into and which will distribute excess amounts, allocate excess to one or more plan(s), and request distribution sufficiently in advance of 4/15 that the distribution will be made by then. Of course, in determining which plan(s) to allocate the excess to the individual will most likely want to choose the plan with the lower(est) match.

Well, that's the benefit of reading the whole thing, Emily1991, vs. just reading the snippets in these posts. :)

Mike Preston, it would be correctable. The employer would direct the trustee to remove the allocated forfeitures from the employees' accounts, with earnings, and put them back in the forfeiture suspense account, and then the employer would transfer an equal amount for allocation to the employees' accounts. As for being "theft," if the employee ends up with the same amount of money in his/her account either way, it's hard for me to see that as theft.

I think we all agree that is correct. I think the issue raised by jpod was that if the individual had been hired in 2017, so only had partial year comp, would you be able to annualize or would you be stuck with 2x actual 2017 W-2. Could make a big difference if individual had been hired late in 2017.

Duckthing, re your first point, my point is that since the employer would have transferred $25k to the plan, in my somewhat artificial example the question of whether it actually transferred the $25k in withheld elective and loan repayments, or pocketed them, is metaphysical. Re your second point, I think that is what it may come down to, especially with IRS and DOL. They would say that even though, absent a precipitous plan termination or employer bankruptcy or the like, the employees have exactly the same economics either way, it would be a "use of plan assets" to not deposit the deferrals and withheld loan amounts. So probably a PT issue more than plan qualification.

I think if the plan says, which most do, something like "Forfeitures can be used to pay admin expenses or to offset otherwise-required employer contributions," then you would be violating your plan doc if you simply reallocated them. Of course, the employer could always resolve to make a discretionary employer contribution exactly equal to the forfeitures, which would have same economic effect. Note that the language I have put in quotes would probably be a bar to using forfeitures as an offset against requirement to transfer withheld elective deferrals and loan repayments. You would need to tweak the language if you wanted to do that.

True. Do you think in such a case you'd be stuck with the prior year's W-2 or could annualize? I would think in that case you could probably annualize, and maybe the use of term "equivalent" instead of "equal" would help.

You're right, there is a distinction on the loan amounts, but the point (or, at least, "a" point) is that in both cases, if the plan says that forfeitures reduce employer contributions, and contains no provision for ever reallocating them to employees, then the $100k in forfeitures, and any earnings on it while it is in suspense, is going to be used for the economic benefit of the employer over time. Notwithstanding that it is in the plan's trust, and a plan asset, economically it's in a pocket of the employer, so for the employer to take money out of that pocket to amortize the loans instead of from another of its pocket (i.e., its general assets as enriched temporarily by the employer's withholding of the loan repayments) doesn't seem to make a difference economically. Think of it this way. Suppose I change the numbers. There are still $100,000 in forfeitures, and I have withheld from employees' pay $20,000 in elective deferrals, $5,000 in loan repayments, and I owe $4,000 in matching. Suppose it's April, 2018 and the employer also owes $96,000 as an end of year profit sharing for 2017. Between the $96,000 in profit sharing, $20,000 in deferrals, $4,000 in matching, and $5,000 in loan repayments, the trustee/recordkeeper, say a bank, needs to immediately allocate $125,000 to employees' accounts. The employer wires $25,000 to the bank/recordkeeper and instructs the bank/recordkeeper to use up all of the forfeitures to fund the rest of the required allocations. Money is fungible. How do we know that the $25,000 that gets wired is the deferrals and loan repayments vs. the match and some of the profit sharing? Economically, there's no difference. That's my only point. I'm not saying this is a good idea or that IRS or DOL would not be unhappy with it. I was just aking if there was a clear reg or ruling on point, and so far I haven't seen evidence there is.