Purplemandinga

I think I would absolutely need clarity on this point to say without hesitation that demographic failures are still subject to the 9.5 month limitation rather than correcting within 18 months from date of discovery... Essentially, I'm still leaning towards plans using the 18 mo timeline.

One would think, if the attorneys who drafted the notice explicitly didn't want demographic failures to be self corrected, they would have said so. Instead, they actually refer to a demographic failure as an "Eligible Inadvertent failure" in the answer to question 2. Thus, if a demographic failure can be classified as an Eligible Inadvertent Failure, then plans should seemingly be able to rely on the 18 month time frame to correct. Let's be honest, there isn't a difference, nor any more urgency to correct a coverage failure than there is if payroll somehow inadvertently didn't allocate a nonelective to 20 employees who were eligible but were somehow overlooked/missed by the employer and during annual nondiscrim testing. The examples the notice gives for ways not to correct a demographic failure are also unclear, yet seem to suggest the IRS simply does not want plans using rate group testing, or plan restructuring to correct demographic failures. Instead, the IRS limits corrections of Eligible Inadvertent Failures of this type to using the "method" within 11(g), which can be interpreted as the correction "method" within 11(g) minus the Treasury Regulation time limitation.

Notice 2023-43 Question 2 states: Before Rev. Proc. 2021-30 is updated pursuant to section 305(g) of the SECURE 2.0 Act, are there any Eligible Inadvertent Failures that a plan sponsor may not self-correct? The answer says: A-2. Yes. Before Rev. Proc. 2021-30 is updated pursuant to section 305(g) of the SECURE 2.0 Act, a plan sponsor may not self-correct the following Eligible Inadvertent Failures: (5) A demographic failure that is corrected using a method other than a method set forth in Treas. Reg. § 1.401(a)(4)-11(g) ... The notice also says Eligible Inadvertent Failures may be corrected within 18 months of identifying the failure more or less. Treas. Reg. § 1.401(a)(4)-11(g)(3)(i) says that a corrective amendment is not taken into account prior to its adoption under this paragraph (g) unless it satisfies each of the requirements of paragraph (g)(3)(ii) through (vii) of this section, whichever are applicable. Treas. Reg. § 1.401(a)(4)-11(g)(3)(iv) says any corrective amendment intended to apply to the preceding plan year must be adopted and implemented on or before the 15th day of the 10th month after the close of the plan year in order to be taken into account for the preceding plan year. ---My question is this. Assume there is a legitimate demographic failure that was not corrected by October 15th and no plan provisions prevent this from being anything but a demographic failure. Would the employer still be able to self-correct under Notice 2023-43 within 18 months of discovery (without a VCP filing) even though the notice says one must correct using an 11(g) method which itself states such amendments must be made by Oct 15th in the year following the failure. Would the "whichever are applicable" language allow for the Notice 2023-43 reasonableness language to prevail?

I suppose this is simply discussing the limits of the year for which the recovery deferrals relate and is not making other explicit statements about which year to record the contributions in? Hmm, I just don't know.

But what about IRC 414(u)(1)(A): (u)Special rules relating to veterans’ reemployment rights under USERRA and to differential wage payments to members on active duty (1)Treatment of certain contributions made pursuant to veterans’ reemployment rights If any contribution is made by an employer or an employee under an individual account plan with respect to an employee, or by an employee to a defined benefit plan that provides for employee contributions, and such contribution is required by reason of such employee’s rights under chapter 43 of title 38, United States Code, resulting from qualified military service, then— (A) such contribution shall not be subject to any otherwise applicable limitation contained in section 402(g), 402(h), 403(b), 404(a), 404(h), 408, 415, or 457, and shall not be taken into account in applying such limitations to other contributions or benefits under such plan or any other plan, with respect to the year in which the contribution is made, (B) such contribution shall be subject to the limitations referred to in subparagraph (A) with respect to the year to which the contribution relates (in accordance with rules prescribed by the Secretary), and (C) such plan shall not be treated as failing to meet the requirements of section 401(a)(4), 401(a)(26), 401(k)(3), 401(k)(11), 401(k)(12), 401(m), 403(b)(12), 408(k)(3), 408(k)(6), 408(p), 410(b), or 416 by reason of the making of (or the right to make) such contribution. For purposes of the preceding sentence, any elective deferral or employee contribution made under paragraph (2) shall be treated as required by reason of the employee’s rights under such chapter 43.

Would a participant who had the opportunity to make up deferrals due to military service under USERRA result in a prior year 5500 being amended to record the deferral in that plan year?

These are all great suggestions/questions, I sent a followup email yesterday requesting additional information. As soon as I get a response I'll let everyone know.

Starting up a new 401(k) and owner wants to roll money in from Self-Directed IRA. They sent me a copy of a checking account balance at some bank that, according to the owner, contained the money of several employees. Is there any substantiation I can request to make sure this mystery money is legit?

It was right under my nose! Thanks Kevin. But to Cassopy's point, if a plan document states that the value of the account balance at termination is to be used, then I suppose date of termination it is. Fort Williams takes an interesting approach and throws in a little extra text that opens the door back open oddly enough by saying "at the time such individual becomes entitled to a distribution hereunder (or at any subsequent time established by the Plan Administrator to the extent provided in applicable Treasury Regulations)."

411(a)(11)(A) Discusses the mandatory cashout limit. But where is the statute, regulation or guidance that states the account value used to determine if this limit has been exceeded is determined on the date the employee terminated? Is it right under my nose and I'm completely missing it?

A) IRC 413(c) governs MEPS, and specifically IRC 413(c)(3) determines how vesting rules are determined. B) IRC 413(c)(3) states that IRC 411 for vesting rules shall apply as if all employers were one employer C) IRC 411(a)(11)(A) discusses the rules stating that amounts greater than 5000 require spousal consent If a MEP (comprised of many participating employers) has two of those participating employers where a single participant has an account balance in each participating employer's plan. The participant has 2,500 in Employer A's plan and 2501 in Employer B's plan and only Employer A provides for involuntary forceouts. The participant is currently employed at Employer B. If Employer A where the participant has a 2,500 account balance is reviewing this participant in regards to whether to force them out because they are no longer employed at that employer, a) Does the plan administrator consider the 2501 balance in Employer B's plan in determination of whether to force out the 2,500? b) Would the answer to a) change if the participant was no longer employed at employer B? c) Would the answer to a) or b) change if the account balances in both plans were 2500? d) Would the answer to a), b) or c) change if both employers provided for forceouts?

I've found when the plan design incorporates this design type, it's best set entry dates to 1/1 and 7/1. This way you can exclude otherwise eligible employees and test them separately. You can't use the carve out method when the plan is SH. I haven't been able to identify a clear breakdown of how to test the plan otherwise, although I'm certain someone smarter than me has figured it out. That said, I've often wondered if you could write a provision into the plan document that stated if at any point in a given plan year a participant is eligible for elective deferrals but not eligible for safe harbor they would be thrown into ADP/ACP testing.

Its a mixture of both groups for sure. I found myself confused in defining the employer since the employer had no connection to the US. While not explicitly raised in my initial question, I found myself spinning my wheels on issues surrounding how a foreign country might defined an "employee" or "independent contractor". For example, if a certain country treats all employees as if they were independent contractors (even though the DOL/IRS might classify them as employees) or some mix of employee and contractor. Do we ignore the way they classify employees and view them through a common law US standard? I think that is what caused my coverage confusion.

Its invested in insurance products within the US?

Lets say a company in Abu Dhabi sponsors a 401(k) plan for all of its employees who work in Abu Dhabi who are US citizens. There is no connection to a US company, purely a Foreign entity. If this plan ran coverage, would it have to include all of its US citizens in coverage or could it include only employees who are actively participating? I'm not even sure this is a legitimate question if I'm being honest.

I had a similar question that I posted and couldn't find an answer to. That said, I think Alonzo might be correct, if you take a moment to think about some of the complications that exist if what you are saying is true. How would you treat wages paid to employees by the managed entity from the viewpoint of the management company's retirement plan if the plan was a single employer plan?

Treas. Reg. 1.410(b)-7 (B) Plan benefiting collectively bargained employees. If a plan benefits both collectively bargained employees and noncollectively bargained employees, the collectively bargained employees are one disaggregation population and the noncollectively bargained employees are another disaggregation population. If the population of collectively bargained employees includes employees covered under different collective bargaining agreements, the population of employees covered under each collective bargaining agreement is also a separate disaggregation population.

When a plan terminates it has to be updated for recent law changes. But what about when a plan merges into another plan. Does the same requirement apply to the plan that will not survive the merger?

If I didn't know better I'd say you two were related. Presson, Preston. Coincidence? Its a conspiracy! The merging of a new plan seems like a possibility. Is there anything regarding the IRS's permanency guidelines, in relation to the retroactive establishment of a plan only to merge it into the current plan, that would make you hesitate?

Plainly read, it would appear the secure act amended 401(b) to allow a sponsor to adopt a profit sharing plan after the end of the sponsor's tax year. But what if a sponsor adopted a 401(k) plan in 2021 to be effective in 2021, but decided to amend the plan to be effective in 2020 (prior to the tax return deadline) so that they could make a profit sharing allocation for 2020. Kosher or not Kosher?

So you're saying there's a chance.

Please excuse my ignorance, but I'm looking at a life insurance annuity inside of a 412e plan that has an account value that exceeds its guaranteed cash value because more than just the premium payments have been paid to it it over the years. Is this a cause of concern?

I could be wrong, but I think he was referring to a situation that was independent from my own. Planit, am I correct in my assumption? If so, I would say, if the plan document doesn't provide any terms to the contrary, this rational isn't unreasonable.

Bird, I believe I misunderstood you originally. I think you and I are on the same page my friend. Thank you for your help!

This is an asset transfer though. Not an equity purchase. There will be a "severance of employment". The two employers are not part of the same related group. Also, Peter I didn't mean to suggest you were suggesting this was feasible in my prior comment. I have a bad habit of suggesting your comments say more than they do. I need to be more careful, I do apologize good sir.