TPABob

Here is what the ERISA Outline Book says: "Whether definition of compensation used to determine matching contributions satisfies IRC §414(s) generally is not relevant in analyzing nondiscriminatory availability of rates of match." And it provides this example: "Example - uniform match based on reasonable definition of compensation. A 401(k) plan matches 100% of the first 3% of compensation deferred by a participant. Compensation for this purpose is defined as base salary. ➤Marshall is an eligible NHC under the 401(k) plan. His base salary is $28,000, although his compensation under IRC §415(c)(3) is $35,000, due to overtime. Marshall is eligible for a match only on the first $840 he defers (i.e., $28,000 x 3% = $840). ➤Gisele is an eligible HCE under the 401(k) plan. Her base salary is $120,000, although her IRC §415(c)(3) compensation is $140,000 due to a year-end bonus. Gisele is eligible for a match on the first $3,600 she defers (i.e., $120,000 x 3% = $3,600). Since the same definition of compensation (i.e., base salary) is used to calculate the matchable deferrals (i.e., the first 3% deferral rate), the definition of compensation is reasonable, the same definition applies to all participants, and a uniform rate of match (i.e., 100%) is applied to all eligible participants on the first 3% deferred, the rate of match is available on a nondiscriminatory basis, regardless of whether the definition of compensation used to compute the deferral rates satisfies IRC §414(s). This is true even though Gisele, who is an HCE, is able to receive a maximum amount of match equal to 2.57% of IRC §415(c)(3) compensation (i.e., $3,600/$140,000), but Marshall, who is an NHC, is able to receive a maximum amount of match equal to only 2.4% of IRC §415(c)(3) compensation (i.e., $840/$35,000). Of course, the amount of the matching contributions must also satisfy the ACP test under IRC §401(m)." Maybe I'm reading this incorrectly? Totally possible!

Would BRFs just apply to the formula (which is uniform based on plan comp definition), but not the contribution rates used in the ACP test, or do you have to pass BRFs testing using the rates calculated in the ACP test?

Is the participant eligible for catch up?

"Likewise, if considering the retroactive amendment, keep in mind that you would need to make sure that the plan was operated that way with respect to all participants (immediate entry rather than first of January/July)." KEC79, I don't believe this is true. Others can correct me if I'm wrong, but it's my understanding that you can do a retroactive amendment to allow early entry for a specific person (assuming the participant isn't an HCE, which again, is unlikely as C.B. Zeller points out).

While our recordkeeping system can certainly track the "sources" of money, we usually recommend actually setting up separate investment accounts to hold Roth and non-Roth assets, if for nothing else, to facilitate in-kind transfers upon distribution from the plan.

Electronic delivery question aside, it's my understanding that a plan termination notice for a non-pension plan is not required. That being said, you'd want to let active participants know that deferrals/contributions to the plan will cease, as a courtesy. Is that not correct?

"This requirement effectively restricts employers to making the QSLP match on an annual basis, even if the plan’s regular match is made more frequently, such as on a payroll period or quarterly basis." Is this really the case? I read the provision to say that you can't set the deadline for claiming the match at, say, 30 days after year end - you have to give participants at least three months to submit a claim (and could allow even longer than three months if desired, but I'm not sure that would be a great idea!). In my mind, that doesn't preclude you from funding it more frequently, it just means you may have to do a true up if a claim for an additional amount came in after the end of the year. Doesn't the part in the provision of the Act that allows for funding of the match on the student loan payments on a different frequency seem to allow for this? I guess it's just another thing we need guidance on!

Austin, I like to call it the "No Notice Notice".

But doesn't Sec 1.411(d)-4 - 411(d)(6) protected benefits, A-2(e) provide an exception that allows the ad-hoc optional form to be eliminated as long as the single-sum form of benefit is available? (e) Permitted plan amendments affecting alternative forms of payment under defined contribution plans - (1) General rule. A defined contribution plan does not violate the requirements of section 411(d)(6) merely because the plan is amended to eliminate or restrict the ability of a participant to receive payment of accrued benefits under a particular optional form of benefit for distributions with annuity starting dates after the date the amendment is adopted if, after the plan amendment is effective with respect to the participant, the alternative forms of payment available to the participant include payment in a single-sum distribution form that is otherwise identical to the optional form of benefit that is being eliminated or restricted. (2) Otherwise identical single-sum distribution. For purposes of this paragraph (e), a single-sum distribution form is otherwise identical to an optional form of benefit that is eliminated or restricted pursuant to paragraph (e)(1) of this Q&A-2 only if the single-sum distribution form is identical in all respects to the eliminated or restricted optional form of benefit (or would be identical except that it provides greater rights to the participant) except with respect to the timing of payments after commencement. For example, a single-sum distribution form is not otherwise identical to a specified installment form of benefit if the single-sum distribution form is not available for distribution on the date on which the installment form would have been available for commencement, is not available in the same medium of distribution as the installment form, or imposes any condition of eligibility that did not apply to the installment form. However, an otherwise identical distribution form need not retain rights or features of the optional form of benefit that is eliminated or restricted to the extent that those rights or features would not be protected from elimination or restriction under section 411(d)(6) or this section.

We used to have a number of plans that weren't on our recordkeeping system, mostly SDBAs only plans, but not anymore! The lifetime-income illustration requirement forced us to put them all on our system, and frankly, I'm happy about that.

Curious to know what others are doing. In Part I, item 2, field b of the Form 5500 Schedule C, do you use service code 10 for non-3(16) third party administrators handling such things as preparation of 5500, 1099R, 8955-SSA and other governmental forms; compliance testing; providing annual participant notices; etc.? If not, what code do you use?

My understanding is if the entity is a partnership and has a tax-year ending 12/31, the unextended deadline to file the 2019 return is 3/15/2020, and thus it doesn't qualify for the delayed 7/15/2020 due date.

This is our understanding of it: Because of the extensions provided by the IRS, the deadline to make loan repayments due on or after April 1 (without running afoul of the deemed distribution rules), is extended to July 15. This applies to all loans, not just loans to Qualified Individuals which can enjoy a longer suspension period under the CARES Act. With maximum use of regulatory cure period provisions, a participant can make up any missed payments by December 31. For example, if a “non-qualified individual” stops making payments any time during the period of 4/1/2020 through 7/15/2020, it’s treated as if the payments stopped during Q3 2020, thus making the end of the cure period 12/31/2020.

I'm thinking, if it's a hardship, you're required to take all other distributions available to you first. So for example, if you're under 59 1/2 and have rollover money in the plan, and the plan provides for distributions from the rollover source, you would have to pay the 10% early withdrawal penalty, whereas if the distribution under the CARES Act is a new stand-alone distribution type, you can go right to that and avoid the 10% penalty. Furthermore, the distribution from the rollover source would not be able to be paid back, whereas the CARES Act distribution would.

Is this a hardship distribution as we would normally think of it, or is it just a new allowable type of distribution similar to birth or adoption distributions added by SECURE? I don't see anything in the CARES Act that indicates it would be considered a "hardship".

Nope, just wanted to clarify that you're looking at it from a vested balance standpoint as opposed to whether or not everyone had some level of vesting service. What you've said makes sense.

So Mike, you're saying if every one in the number listed earlier in the sentence has a some kind of vested balance in their account, you would answer yes and not have the "although not all of these persons had yet earned the right to receive benefits" language on the SAR, right? Would you still answer yes if any of those in the number had no balance at all (i.e., eligible participant who hasn't deferred or received an employer contribution) even though they might have years of vesting service under their belt?

We use ftwilliam.com to produce our 5500's and Summary Annual Reports. In the General Information section of the SAR checklist, question 5 asks "Have all participants earned the right to receive benefits?" If you answer yes, it removes the "although not all of these persons had yet earned the right to receive benefits" language. We're not sure how to answer this from a defined contribution plan perspective. Is this tied to whether or not everyone is fully vested, whether or not everyone is entitled to take a distribution from the plan, whether or not all of the participants listed in the count earlier in the sentence have a balance, or some combination thereof? If it's tied to whether or not everyone is entitled to actually take a distribution, it seems like there would be very limited circumstances when you would not include the language. It's interesting that ftwilliam.com gives the option to include or exclude this language when the model notice in the DOL reg (§2520.104b-10) hard codes the language (i.e., doesn't provide for alternative language or qualify when you would or wouldn't use it like it does for other parts of the notice). I'm inclined to just follow the model notice and include the language in all cases, but I'm curious as to what criteria others are using to determine how to answer this question?

Alright, conventional wisdom it is! Thanks again.

Yeah, I tend to do that! But you get my point about wondering if the intention of the add back is to put those that terminated during they year in the same position, whether they took a distribution or not? BTW, thanks for the discussion on this, I follow you guys a lot and always respect what you have to say.

There are a few things that raise the question in my mind - 1) if the participant terminated during the year but didn't take a distribution, his entire account balance, vested and unvested, would be attributed to him and included as part of his balance. It makes me wonder if the intention of the add-back is to put those participants that actually took distributions in the year they terminated in the same position as those that didn't. Both would fall off in subsequent years, so they're getting the same treatment in that regard; 2) I could interpret "distribution" in this context as meaning amounts distributed from the participant account, whether actually paid to the participant (or rolled over) or forfeited, especially considering...3) the use of the term "account balance" as opposed to "vested account balance" in the EOB, as I pointed out in my original post. It makes sense to me what you're saying about the forfeitures staying in the plan, Mike - I guess what I'm postulating is that the forfeiture would be attribute to the specific participant that took the distribution for that one particular year, being the year of termination, in light of the treatment of participants who terminated during the but didn't take a distribution. In subsequent years, the forfeiture would either be out of the plan if used to pay expenses or captured in other participant's accounts via reallocation of the forfeiture.

But the amount forfeited was part of the participant's account balance during the period, just like the amount distributed was. Neither amounts were in the participant's account as of the determination date.

For top heavy account balance determination in a DC plan, are unvested amounts that are forfeited included when adding back distributions for participants who terminated during the year? For example, a participant with a total account balance of $10K, of which $9K is vested, terminates during 2017 and takes a distribution during 2017. Would you add back $10K or $9K? EOB gives an example that says, "the former employee's account balance must be included in the top heavy ratio" [my emphasis added]. I can't seem to find anything definitive in the Regs., but logically, it seems like you would add back what would have been the full value of the account (unvested portion included) since that's the amount you would include for someone who wasn't terminated.