C. B. Zeller

Ouch

Thanks for the reading material - I will see if I can find something that applies.

Full distribution, meaning a total distribution of the participant's account? I assume the 5,000 and 3,000 numbers are rounded off? The distribution was in 2018? Has the participant filed their 2018 tax return yet? If so they will need to file an amended return. Report what was actually withheld. Since there will be 2 forms, I would report the full amount of the withholding on the form with the code 7 and 0 withholding on the form with code B. When the participant files (or amends) their tax return, they will get a refund of any excess amounts that were remitted to the IRS.

Plan sponsor has an ownership interest in an IRA provider. Can they force out (terminated <$5k) participants into IRAs with that provider, or would that be a PT? I remember reading about a PTE that would allow banks to force out participants in their plans into IRAs held by the bank, but my search skills are failing me at the moment and I can't find it again. If I'm remembering correctly it would seem to be relevant guidance.

Lou S. is correct. You should read the 416 regs carefully to understand the requirements and options available to satisfy top heavy minimum in a combo plan. In particular 1.416-1 M-2, M-4, M-7 and M-12 will be helpful but I recommend reading the entire reg. One advantage to the SH match vs the SH nonelective is that an employee who works fewer than 1000 hours and terminates would, with a SHNEC have to get the safe harbor and therefore the entire gateway, whereas with a SHMC they do not necessarily need to get any contribution. Whether this outweighs the need to give the match in addition to the full gateway to the eligible employees will depend on the employer demographics and turnover rate.

Looks like this has already been settled, but thought I'd chime in with some code references. 404(a) says, in more verbose form, that contributions to a plan are not deductible unless they meet the requirements of that section. 404(a)(3)(A)(i) allows the deduction for contributions paid into a profit sharing trust in the taxable year when paid (with (a)(6) providing the deemed timing rule for contributions paid by the due date of the tax return). 404(a)(3)(A)(ii) allows for the carryover of the deduction to following tax years of amounts which were contributed in excess of the 25% limit. I am aware of nothing in the code or regs that would allow the employer to arbitrarily decide to take a deduction in some future year for a contribution paid in the current year.

Barring any language to the contrary, the plan's loan policy document governs the making of new loans. So the receiving plan could accept the two loans as a rollover and then not permit the participant to take another loan until those have both been paid off. I suppose the receiving plan could limit rollover contributions to no more than 1 loan, if desired. This would probably have to be spelled out in the document though.

One of the key defining differences between a defined benefit plan and a defined contribution plan is that in a DC plan investment risk is borne by the participant, and in a DB plan the investment risk is borne by the sponsor. So yes, it is possible that the sponsor could be on the hook for larger contributions if the assets perform poorly. It's also possible that the MRC is zero despite the value of the assets. It's impossible to know without more details specific to the plan.

No. A limit on the amount of deferrals for the HCE group would have to be done by plan amendment. The limit would have to be definitely determinable and not subject to employer discretion. Being an amendment, the usual rules around amendments apply. SMM is needed, 411(d)(6) applies, etc. There are 4 and only 4 ways that deferrals can be reclassified as catch-up. Those are: Exceed the 402(g) limit Exceed the 415(c) limit Exceed a plan-imposed limit Excess contributions resulting from a failed ADP test, reclassified as catch-up rather than being distributed If you adopt an amendment to limit deferrals, then deferrals in excess of the stated limit would automatically be reclassified as catch-up. Assuming, of course, your plan document permits it, which if it a volume submitter document it almost certainly does.

1.402(g)-1(e)(2)(i) "Not later than the first April 15 (or such earlier date specified in the plan) following the close of the individual's taxable year, the individual may notify each plan under which elective deferrals were made of the amount of the excess deferrals received by the plan."

I believe so. Rev. Proc. 2019-19 5.01(2)(B) defines Operational Failure as "a Qualification Failure (other than an Employer Eligibility Failure) that arises solely from the failure to follow plan provisions."

The asset valuation method described in the paragraph you quoted is not simply the average of the FMV for the last 3 valuation dates. If you want to proceed, I suggest that you read Notice 2009-22 very carefully first. Assuming that you are using the method correctly, then yes, there would be automatic approval for the change under RP 2017-56 provided that the asset valuation method was not changed in any of the four preceding plan years and that none of the restrictions in Section 6 apply.

What if the loan was taken from a Roth source?

I would say name yes, address no. Security issues aside - what if they moved?

That's not the question though. The question is, on a loan schedule with N payments of X remaining, can a participant pre-pay the next M (<N) payments by making a single payment of M*X and then make no further payments until they resume regular payments of X after M pay periods?

For those who say this should be allowed, does this permit a back-door method of making after-tax contributions? For example, I take a 50,000 loan from the plan, amortized into monthly payments at 6.5% over the next 5 years. That is 60 payments of 978.31. The next day, I make a payment of 58,698.60, which I instruct the trustee to treat as pre-payment of the 60 installments and not a single payment of principal. Have I just made a contribution of 8,698.60 which is not subject to any limitations or testing? One year + one day later, what is my highest outstanding loan balance in the last year for purposes of taking a new loan?

15% for prohibited transactions. 10% for late ADP refunds, minimum funding deficiency, non-deductible contributions, maybe some others. The only time I think that you can deposit the excise tax to the plan instead of paying it to the IRS is if you are using PTE 2002-51.

The reason EZ and one-participant SF filings are not public is because ERISA sec. 106 does not apply to one-participant plans.

I agree with JackS - this is 100% a payroll problem and not a plan problem. The withholding was not authorized by the plan and the funds never touched the trust so the plan has nothing to do with it. You might need to: Run the amounts though payroll Issue corrected 2017 W-2s to the affected employees Ask the employees to redo their 2017 taxes I don't know if the IRS offers a correction program for payroll screw-ups like they do for qualified plan errors. This seems like something your payroll company should be able to advise you on.

One of the guiding principles of the correction program is to put the plan in the position it would have otherwise been in had the failure not occurred. If his election was in place at the time that the failure occurred, then the employer is obligated to honor that election. There is no basis for allowing him to retroactively waive his election merely because the correction is being done now. Another way to think about it is that the correction is simply fixing an operational defect in the plan. It is not some benefit or right that is available to individual participants. Therefore there is nothing to waive because the correction is not adding anything new to the plan.

I don't have a reference to back me up, but I think you would consider a year of service to be "completed" on the last day of the year in question. So, for the year during which you turn 18, the year is completed after the attainment of age 18, therefore it would be counted. If your birthday is December 31 I think you still count it.

Since the employees are spread out among different corporations, it might be possible, if they meet the other requirements, to disaggregate some of those corporations as a QSLOB. You would still have to include some of the NHCEs in the safe harbor plan, but potentially many fewer.

Chances are this is a prohibited transaction if the s-corp or any of the shareholders are getting any benefit from the land. For example if it's the piece of land that the corp's office is located on, it would be a PT because the corp (a disqualified person) is using plan assets (the land). At a minimum, I would advise you to read this and consult an ERISA attorney before proceeding.

1.401-1(b)(ii) To be a profit-sharing plan, there must be recurring and substantial contributions out of profits for the employees. In the event a plan is abandoned, the employer should promptly notify the district director, stating the circumstances which led to the discontinuance of the plan. This is a very old reg but is still on the books.

Top heavy minimum is required.