Luke Bailey

ERISAGal, if you think that the plan document requires it now, then presumably unless the language was different in prior years (and you say it was not), then they have a "failure to follow" plan document error for prior years that would be correctable only under EPCRS. In similar situations I have looked hard to determine whether there was any possibility that the plan language could be interpreted in a way consistent with the way the employer operated the plan. Sometimes it can be. When it cannot, we recommend EPCRS, which of course will cost a little in terms of the likely requirement for make-up contributions.

Purplemandinga, the spun off single employer plan is a successor, so really same "plan" in a sense. You did do the blackout notice, and there is no downside to overreporting, so why not check 4m "yes?"

KaJay, if all the part-timers got the offer letters saying "no benefits," and if the context of the overall letters and any other supporting documentation and other facts and circumstances is consistent, you might have a chance. Whether it is worth the cost of submission depends on how much is involved and an evaluation of the case.

QDROphile, your points 1 and 2 are excellent and will be very helpful to persons taking your advice. I would point out, however, that your first paragraph pretty much describes...well...clients!

KaJay, all I can tell you is that in VCP the IRS may, depending on a number of factors, permit an employer to amend a plan retroactively to conform the plan's terms to how the plan was operated, but the employer has to show that it consistently operated the plan in the manner that it now wants to conform the document to and also that employees were informed of the way the plan operated. So you would need to gather ALL the offer letters, make your case to IRS as to what "no benefits" meant in context, etc. The result you get will be driven in part by the skill of your advocate, but he or she cannot work miracles, of course, so the facts are the most important thing.

I think that if you submitted to VCP, that's precisely the correction you would get, so sort of a slap on the wrist. The reattachment of any distribution restrictions, however, would require a plan amendment and would take away a right (e.g., right to immediate distribution from rollover account at any time and age, if the plan has that feature), and I'm dubious that such an amendment would meet the "all positive" requirement for SCP amendment under 2019-19.

I think it is optional, CLE401kGuy. The reasons to do it (i.e., take the transfer for the terminateds) are that some of the terminated employees might come back to work for their former employer and there is also a fiduciary reason, i.e the employer of those former employees might (it should make this determination) be a better steward of the terminated employees' funds, in multiple ways. Also, presumably administrative communications will need to occur between the employer and the MEP with regard to the terminated employees and their balances, even if they don't return to work, and the need for these administrative tasks, which are no longer justified by having the actives in the MEP, could be eliminated by rolling over balances of terminated employees.

C.B. Zeller, I generally agree with your response to baileybear and he or she should find it very helpful. However, would your answer be any different if the plan (which has a favorable determination letter), contains the following provision: "The [plan sponsor] and the Plan Administrator may from time to time impose limitations on Elective Deferral Contributions, including limitations that apply only to Highly Compensated Employees, as the [plan sponsor] and the Plan Administrator in good faith determine advisable to ensure compliance with any Federal income tax rule, or for administrative feasibility."

jpod, my take on the question was that this was probably the business owner who is the trustee. In that context, he or she may feel he or she needs education. In theory, that is the equivalent (or cheaper) of having the trust hire an expert to advise him or her on whatever he or she is being educated about.

I think this is a tough one. Depending on facts and circumstances, you can probably make a decent argument it's a plan expense.

If you include it in the plan document at a particular rate, with no discretion, it's definitely determinable.

austin3515, the 5-year loan term means you cannot extend the loan beyond five years if you need to to reamortize and say it never defaulted. It seems to me that the loan you describe defaulted when the grace period ran out on the missed payment in 2017, so your solution, if there is one, is in Question 2.

cpc0506, Check out Notice 2016-16. This would appear to be a permitted amendment for a safe harbor plan, but may require a new notice under the rules explained in 2016-16, depending on your facts. I would also think that it would meet the requirements for self-correction by amendment under Rev. Proc. 2019-19. Of course, I have not examined your documents or facts, so am treating your question like a hypothetical example.

austin3515, are your Questions 1 and 2 dealing with the same loan, or two different loans and two different problems? I have potential answers to your questions, but am confused on that point. Re Question 2, standing alone, austin 3515, I have puzzled over this language myself. It does seem to me like what the IRS is saying is that if you inadvertently failed to report a deemed loan, say in 2017, you can "correct" by issuing the 1099-R for the deemed loan for the year in which you discover the error and correct, say 2019. I wish they had made that clearer, though, e.g. with an example. Also, as I recall it is not completely clear from the language whether, if in this example you don't correct until 2019, you would have to include the additional accrued interest from 2017 through 2019 in the 1099-R. I am inclined to think not.

OK. Here's a possible way to harmonize both sides of issue. Treas. reg. 1.401(a)(4)-5 contains rules prohibiting a pattern of discriminatory plan amendments, determined on a facts and circumstances basis. So if austin3515's client conforms the plan doc to plan operations where plan comp definition was underinclusive of what payroll was doing, and the amendment this time benefits predominantly HCEs, then arguably that's OK under 2019-19, but has the collateral consequence that they are committed to amending in future for similar issue, even if predominantly affects NHCEs in future instance. Otherwise, if they amend only to conform plan doc when it favors HCEs, they have a discriminatory pattern of amendments. Of course, they may never have a similar error, but the principle applies nonetheless.

Lou S., I had heard this rule stated many times in the past, and I appreciate your providing the informal guidance from IRS. I can see where from IRS's standpoint they would see it as a problem for an employer to carry forward a suspense account indefinitely, benefitting from tax deferral, without allocating it to participatants or using it up to pay plan expenses. Could also be used to benefit "last standing" participants if plan is eventually terminated. At least they give you until the end of the next year to use it for administrative expenses.

Cynchbeast, although the account may have been titled in the name of the plan, david rigby may be on to something here. The employer could have paid these expenses directly, so maybe the deposit into plan was in error. ERISA 403c)(2)(A)(I) permits return of mistake of fact contributions within one year. And actually, if the plan was terminated and fully paid out before the $250 hit the account, was it really an account of the trust, even if so titled at that time?

CEB50, that may be correct, but can you provide a citation to a reg or other guidance?

austin3515, I agree with you that there does not appear to be anything in Rev. Proc. 2019-19 that imposes a "predominantly NHCE" or similar requirement. Seems like it should work if caught within the self-correction period.

I think the place to start is whether they are practicing as Schedule C sole proprietors, somehow in connection with the LLC, or whether they practice as employees or members of the LLC. You don't provide enough facts, but the LLC may be the only possible "employer"/plan sponsor.

52626, I think that if (and I'm not completely clear on your facts) the safe harbor provisions are identical (i.e., 3% nonelective), the merger could be analyzed as in effect a plan amendment that is not a prohibited amendment under Notice 2016-16. But that is really "hypothetically" speaking, since I obviously have not reviewed your facts/documents.

Flyboyjohn, I have not dealt with that situation personally and don't see anything directly in 1.401(k)-3 regarding the issue, but I think probably you have a separate "plan within a plan" already in the situation you describe because of the mandatory disaggregation of the union group under 1.410(b)-7(c).

MEF, I will be interested in any responses you get. If you are asking in connection with a state or local government pension plan, you might also want to check with NAPPA, the National Association of Public Pension Attorneys. The issue of disability determinations for pension plans is a frequent topic at NAPPA meetings and on their listserv. Most private employers do not have special disability benefits for their retirement plans and have insured LTD plans, so the insurer makes the determination. In the private LTD arena, there is a plethora of ERISA case law.

BG5150, since you could adopt it now with a 1/1 effective date, you should be able to amend it now to have that effective date.

Fiduciary Guidance Counsel makes a good point, katieinny. I was not familiar with the issue and based on his post I Googled what I thought might be a good search and turned up (a) a NY state life expectancy table, (b) lots of offers of annuities by insurance companies, and (c) an article indicating that, at least in most states, to not be counted as a transfer the annuity must be irrevocable, which would mean purchase of an actual contract. So I think the bottom line is you need to investigate your state's rules.