Paul I

The only reason I have left for keeping my ERPA designation active is not that compelling. I use it in the rare circumstance where I get Power of Attorney to be able to speak directly with the IRS without having to coordinate every contact through a relatively inaccessible client. The most compelling for maintaining any credential is it is enough incentive to keep current on what is happening in our ever-evolving retirement plan universe. Frankly, participating in discussions here on BenefitsLink often proves more valuable than too many of the courses that offer CPE credits.

@Peter Gulia, commercially-developed software has limitations simply because attempting to program all possible testing scenarios would be cost prohibitive, be a nightmare to maintain, and still not be able to cover the universe of all possible testing scenarios. it also would consume a lot of computer resources and likely not be able to create reports that describe how the results were arrived at. Some software can be used to help if the input required to do the test can be accommodated reliably. Controlled group testing easily can expand rapidly, particularly when a plan actually is considered three different plans for purposes of coverage testing (deferrals, match and NECs). It would be not surprising that a group with 60 401(k) plans would result in needing over 150 separate tests. Big controlled groups exist, and compliance testing is being done, but it takes a lot of discipline, careful engagement management, broad knowledge of testing quirks and available software tools, and meticulous tracking of plans and census data. As @CuseFan said, "This is where we as consultants earn our money."

Short answer - No. One way to look at it is there are two different levels of 410 coverage testing. One is done at the plan level (or aggregated plan level). The other is done at the controlled group level, and must pass before you get to the plan level test. For example, if you are using the ratio test at the pan level, the denominators are the nonexcludable HCEs and NHCEs in the plan, and an employee is excludable when applying the provisions of the plan. (The numerators are the HCEs and NHCEs that are benefiting from the plan.) If you using the ratio test at the controlled group level, the denominators are the nonexcludable HCEs and NHCEs across the entire controlled group, and an employee is excludable when applying the most lenient provisions of any plan in the controlled group. This is a greatly oversimplified comment meant primarily to illustrate how the 410 coverage test at the controlled group level and plan level may look the same, but they are not the same. FYI, there is a possibility of using QSLOBs where based on geographic locations (among a wide range of other things), but the QSLOBs must be elected by 9/15 following the close of the plan year and QSLOBs have a whole other set of arcane rules.

Rents definitely are not contributions. Be careful not to restrict the definition of investment income solely to rents. Rents are income and are used to cover operating expenses among other things. Look to the rental property's P&L for financial reporting, for example, on trust reports and the 5500.

Very likely there is would be no issue doing the true-up through the termination date. If the original plan document language somehow was overly descriptive and explicitly prescribed the true-up calculation, for example, by referring December 31, then the easy fix is to use the plan termination amendment to specify a true-up as of the termination date. They may want to do this anyway since it is very simple to do. They will not want to wait until next year in any event since the plan will not be considered completely terminated until all of the benefits are distributed and the assets to to zero. If they paid out everyone shortly after the termination date and then made a contribution next year, the plan would need to file 5500 for next year (assuming a calendar year plan). Keep it simple.

@Bri is on the right track. You will need, for example, to track meticulously a lot of information about: tests to be performed by plan (Deferrals, Match, NEC), and across the controlled group or testing groups (410 coverage, ADP/ACP, 401(a)(4), 415, comp limits...) each plan's provisions (eligibility, entry dates, service accrual (hours/elapsed time), compensation, testing compensation, birth/hire/term dates, classifications...) plan years (hopefully all plans have the same year) any mandatory disaggregations (ESOPs?, current vs prior year ADP/ACP testing?, Safe Harbor vs Non-Safe Harbor?, unions??) any permissive aggregations that may be needed to pass testing census data for all employees of each employer census data for employees who worked for more than one employer within the controlled group testing strategy (ratio vs average benefits test, benefit accruals vs allocations...) any mergers, spinoff, or acquisitions within any permissible transition time period ownership at all levels. If there are Defined Benefit or Cash Balance plans in the mix, then there needs to be close cooperation between the actuaries and any others involved in testing. Look out for testing quicksand/tar pits: Keep in mind that the determination of HCEs is done across the controlled group and, generally, if one of the plans is not using top paid group rules, none of the plans can use the top paid group rules. 5% ownership rules applies at the employer level, ownership of a subsidiary can trigger unexpected HCEs, Plans with very liberal eligibility provisions. Union employees. Leased employees (who may need to be included in testing even if they are excluded as a classification). This is in many ways the tip of the iceberg and is not a comprehensive list. Testing this many plans within a controlled group is very labor intensive, and the complexity increases almost exponentially with the number of plans and employers involved. Be sure to price the effort properly and make sure you consider the fees that may be charged by other professional like outside legal counsel or independent actuaries. If this is your first time performing testing at this level of complexity, you will have lifetime memories from this project. You may want seek out someone who has done it before to provide some guidance and be a resource as your engagement progresses. Good Luck!

I posted the comment as a question to see if anyone would say 12/31 (or something other than 1/1). It's clear that given the assumed provisions, the answer is the entry date is 1/1 following the employee's completion of the first ECP. I, too, have clients that will retro back to 1/1 of the current year, but those provisions are clearly stated in the document.

In my experience, the most common situations where an individually designed plan is used are for: companies that are actively involved in mergers & acquisitions, and the company wishes to preserve certain plan features available to employees of an acquisition; companies that have had plans in place for decades and the company wishes to preserve features that are no longer made available for more recently hired employees; companies that have several classifications of employees and the benefits vary among the classifications. I have not seen a situation where a company uses a pre-approved plan document and the IRS determines that the document has been heavily modified so the document no longer is considered a pre-approved plan document, but this could happen. I have seen some plans that have an excessive number of entries or very long entries in "Describe" lines provided in pre-approved plan Adoption Agreements, or in blank lines available for custom language (particularly in an Appendix), and have wondered if the plan could have crossed the line and become an individually designed plan.

This discussion most commonly comes up when an employee's service starts a day after an Entry Date. It sometimes helps to consider the how the entry date would be under similar circumstances but applied to a different set of dates. For example, if an employee is hired on January 1st (which is a plan Entry Date) and completes 1000 hours on December 31st (the last day of the first Eligibility Computation Period), would that anyone consider the employee to have entered the plan on December 31st?

Technically, the form should be amended. Did the change in the count have an impact on the filing (like triggering the audit requirement)? If yes, we would amend the filing. If no, we likely would carry the prior year count forward and use the correct year end numbers (assuming that the client doesn't repeat sending inaccurate information). Since the issue involved a termination date, don't overlook the individual when filing the Form 8955-SSA for the current. The SSA form is very lenient about who and when someone is reported.

Have you tried searching for the filing using the 5500 search feature https://www.efast.dol.gov/5500Search/ ? If the filings were accepted and cleared all edits, they should appear in the search results. I recommend searching for the EIN (no hyphen).

Having contemporaneous documentation of the change in trustee is a good idea for those uncommon times when a financial institution digs in their heels and refuses to do something until the name of the trustee on the account is changed formally. This is particularly true when there is only one named trustee on the account. I have had financial institutions refuse to close an account when assets were moving to another institution simply because the name of a former trustee was on the account and the financial institution insisted on getting signatures from all of the named trustees. This type of demand disrupted an otherwise well-planned transition of assets.

My understanding is there is no statute of limitations for non-filers. Also, you will need to navigate the IRS and DOL rules separately since the IRS commonly defers to plans who use the DOL DFVCP program, the IRS is not required to do so and can impose its own penalties and required corrections. DO NOT ATTEMPT TO CORRECT THIS WITHOUT INVOLVING LEGAL COUNSEL WITH EXPERIENCE IN WORKING WITH BOTH THE DOL AND THE IRS. Since the data are not available, any correction will require negotiating with each agency, and this is more an art than it is a step-by-step procedure. A starting point will be confirming the years for which 5500s were required. This itself can be tricky for 403(b) plans when looking going back at many years past. May you be well-compensated for the journey you are about to undertake. Good luck!

@jsample, out of curiosity, is the language you note in the prototype document a comment or notation in the adoption agreement, or is it a provision in the Basic Plan Document (or both)? I have never seen this in a BPD, but have seen some AA's where attempts at explaining a provision are off the mark.

Keep in mind that by the time a recordkeeper sees a deferral, that deferral already has been processed by payroll. A recordkeeper can only react to whether payroll has applied the catch-up rule correctly. Generally, payroll for self-employed individuals is run separately from payroll for common law employees. The self-employed payroll commonly pays a draw and processes some deductions for fringe benefits or insurance, but does not apply payroll taxes. The self-employed individuals are responsible for making estimated tax payments directly with the IRS or through their tax accountants. It is not uncommon for a payroll interface file sent to the recordkeeper to combine the two separate payroll runs into a single file. If either payroll or the recordkeeper keeps an indicator for self-employed individuals, the indicator will need to be able more sophisticated than just a "yes/no" indicator. For example, the recordkeeper will need to be able to discern when an employee changed between being a common law employee and a self-employed employee in the prior year, or need to know how much compensation in the prior was FICA wages and how much was self-employment income. Maintenance of an indicator likely will fall on the employer, regardless whether the indicator is in the payroll system or the recordkeeping system. I expect when these provisions go live, a full-contact game of hot potato will break out between payroll and the recordkeeper with each side saying "it's your job, not mine."

Most of the pre-approved plans I have seen during the Cycle 3 restatements moved away from giving participants full discretion to designate the order of withdrawal from the available sources. There does remain a fair amount of flexibility with many offering a plan sponsor choice between pre-tax and Roth accounts as: pro-rata, pre-tax before Roth, or Roth before pre-tax. There also is the variability in the sources the plan sponsor wishes to make available for withdrawals. A common order of withdrawal is first to take rollover and voluntary after-tax, then elective deferrals to the extent they participant is eligible to do so, followed by employer sources (match or NEC). The thought process is first in line are accounts that are the employee's money so they should have access at will, then it is the employee's money but may be restricted because this after all is a retirement plan, and lastly it's the company's contribution for retirement and not a bonus plan. Most plans have been around for many years and often do not change this type of plan provision as the years and restatement cycles roll along. For new plans, the service provider is likely to push and get approval for their preferred approach.

If there is a payment from an account in which the participant has basis, there is no election available that to consider the first dollars distributed to be all basis. It is worth noting that some plans use the ability to specify order of accounts from which payments are made to preserve basis in the plan, particularly for amounts paid from Roth accounts. Note that plans that allow participants to designate the order of accounts from which payments are made often find that participants have an expectation that they can request a payment that has the least associated taxes. This can be a nightmare, and also possibly crosses the line of the plan offering tax advice. Under certain circumstances (for example, after there has been a deemed distribution from a pre-tax account and subsequently loan repayments resumed) where there could be basis in that pre-tax account.

The EBSA loves the DOL Online Calculator. I would bet they would say that is an approved approach for calculating earnings for a reinstated forfeiture. One of the big issues with handling missing participants is none of the agencies want to let the plan fiduciaries off the hook for trying to find a missing participant, no matter how hard the fiduciaries try to find the participant. Several times when the EBSA has been asked when the plan can stop searching, the answer effectively has been "Never". With that in mind, the only way the fiduciaries get off the hook is when the plan terminates, they do one last search, and then deliver transfer the funds and any available demographic information to the PBGC under their program for terminating defined contribution plans. It is interesting to note that the PBGC will not credit any earnings in the event they locate the participant. If you are a fiduciary and have a handful of missing participants, until you terminate the plan, life is not fair.

I share the opinion that allowing separate elections in payroll for elective deferrals and for catch-up contributions is a bad idea, but there are companies that use this approach and collect separate elections. It is a reality, and as I noted, it can cause problems with compliance (which - thankfully - is not done by payroll). It is worth exploring why a company would use the approach to make separate elections. The scenario I have seen most often involves the plan having a relatively low maximum elective deferral percentage (more commonly applicable only to HCEs). Catch-up contributions have universal availability and the company takes the position that a participant who defers at the maximum percentage must have the opportunity to make catch-up contributions, and so they allow a separate catch-up election. The other scenario is where the payroll cannot or will not support tracking the annual deferral limit and automatically change from elective deferrals to catch-up contributions once the annual deferral is reached. This seems to be more prevalent when payroll is run in-house, but there are payroll companies that say this is not their responsibility. Not my recommendation, not my circus, not my clowns, but it happens.

I have seen plan provisions that explicitly say that if the benefit for a lost participant is forfeited and the participant subsequently is found, then the forfeited amount is reinstated and not adjusted for earnings. This language usually appears today in several of the individually designed plans and in Basic Plan Documents associated with pre-approved plans. The DOL does not think the benefit could be forfeited in the first place, so they expect that if a plan did forfeit the benefit, then the plan should reinstate the forfeited amount and make the participant whole (i.e., adjust for earnings). I have spoken with both agencies and this was the feedback I received, but each agency said it was not the responsibility of the other agency and they would have to confirm it in writing (neither did).

From the perspective of the recordkeeper, the recordkeeper needs to track what is sent to them by payroll. If payroll says pre-tax or Roth, and elective deferral or catch-up, that's what it is. (For compliance test, there may be some amounts that get treated other than as designated by payroll, but that is not the question.) If payroll is run where an employee only can specify one elective deferral % for pre-tax and one elective deferral for Roth, then payroll will have to track YTD deferrals and stop the pre-tax when the accumulated total elective deferrals reach the deferral limit. If payroll is run where a High Paid employee can specify a pre-tax elective deferral, and also a Roth elective deferral and a Roth catch up, then payroll again will have to track all the separate accumulated totals and stop the pre-tax contributions once the total elective deferrals reach the deferral limit. There are other permutations of elections and they each have their downsides. Administering the new provisions will be significantly more prone to errors. The takeaway is, if there is firing squad to shoot whoever screws it up, payroll will not stand next to the recordkeeper, rather payroll will stand in front of the recordkeeper.

I, too, agree with @david rigby and @Bill Presson. It is worth noting that in a stock acquisition, the seller effectively "disappears" upon closing and is replaced by the buyer as the Plan Sponsor. In effect the ownership of the assets happens on the merger date. In an asset acquisition where the seller continues to exist after closing - and particularly if the seller's plan continues to exist after closing with the seller as Plan Sponsor - then it is good practice to document who owns what and when do they own it, and settlement of plan assets will occur as soon as administratively practical.

To borrow a phrase from Derrin Watson about this type of question "You're looking for a sleeping black cat in a dark room ... except there isn't really a black cat there. There's no real guidance."

There should be no problem with electronic elections as long as the plan follows all of the IRS and DOL rules for electronic delivery. These rules do require an interaction with the participant to document that the participant either elected to receive electronic communications. There are a lot of rules surrounding electronic delivery, and it is not advisable for an employer to take a DIY approach to implementing collection of participant elections.

Auto-enrollment doesn't mandate (in the context of an employee cannot elect out of) a specific deferral amount, or mandate a specific match formula, or mandate a specific NEC. AE also doesn't mandate a specific eligibility, vesting or benefit accrual. AE mandates a specific process for enrolling new entrants. There doesn't look like there is anything that requires BRF testing. You don't say if this was a stock or asset sale, and do seem to imply that the purchase has been consummated and the seller's plan was terminated prior to the sale. If any of this is not true, then there are other issues (such as successor plan rules, continuity of the plan sponsor...) that could factor into the decision-making.