KMMB

Under the terms of the 401(k) plan document, a related employer must complete a participating employer adoption page for employees of that related employer to participate in the 401(k) plan. The 401(k) plan sponsor is an S Corp, and employees of a QSub of the plan sponsor also participated in the 401(k) plan but a participating employer adoption page was not completed for the QSub. We know that a QSub is disregarded for federal tax purposes because its assets, liabilities, and items of income, deduction, and credit are treated as owned by the parent S corporation, so this may make sense. Has anyone else seen a QSub participate without completing a participating employer adoption page?

Has anyone used self-correction under the new Rev. Proc. 2021-30 for a correction by plan amendment that only affects HCEs? We have a 403(b) plan document that excludes highly compensated employees from eligibility for purposes of matching and nonelective contributions. In 2016 the employer requested an amendment to the plan document to remove the eligibility exclusion for HCEs to receive matching contributions. Consistent with the requested amendment, the employer began making matching contributions for HCEs but cannot find a record that the plan amendment was ever signed. It has only impacted 1-3 HCEs in each year, and the dollars involved are relatively small in comparison to total matching contributions and plan assets. Assuming self-correction is otherwise available, it does not seem clear from 4.05 that this could not be corrected by a retroactive plan amendment outside of VCP.

Thank you Lou. This is a preapproved volume submitter that does not specifically address grandfathering, or even transfers from eligible to ineligible classes.

This is helpful Lou and CuseFan, but what do you about the following scenario: You hire someone today and for 2021 they are an NHCE (not a 5% owner and no prior year comp) so they enter the plan, but in January 2022 you look back at 2021 comp and see that they are an HCE for 2022. Now you have a HCE in the plan who has not completed 12 months of service. Do they continue participating in the plan for the first 4 months of 2022 as they did before or do they now have to wait until they complete 12 months of service (because they are now an HCE)?

We have a client with a safe harbor 401(k) plan that imposes different elective deferral eligibility requirements for NHCEs and HCEs. NHCEs may begin making elective deferrals on the first day of the month following the first day of employment or re-employment. HCEs must complete 12 months of service before entering the elective deferral portion of the plan. However, in practice, HCEs have entered the plan at the same time as NHCEs (that is, the first day of the month following the first day of employment or re-employment). On a separate, but possibly related note, all eligible employees must complete 1 year of eligibility service to receive the safe harbor match. We have not seen a plan eligibility provision like this before, and wonder if this provision was intended to address early participation rules and nondiscrimination testing requirements. Has anyone else seen this provision? If so, in practice have you only applied the HCE eligibility provision to 5% owners (because a new employee cannot be a HCE based on compensation that first year)?

This employer is correcting failed nondiscrimination testing for a prior plan year using the one-to-one method under Revenue Procedure 2013-12, Appendix B, section 2. When allocating the QNEC to eligible NHCEs should the employer use the plan's definition of compensation for the year of the failure or total compensation for the year of the failure? IRS guidance does not appear to address this specific question (the revenue procedure merely states it must be a uniform allocation as a percentage of compensation).

This employer is correcting failed nondiscrimination testing for a prior plan year using the one-to-one method under Revenue Procedure 2013-12, Appendix B, section 2. When allocating the QNEC to eligible NHCEs should the employer use the plan's definition of compensation for the year of the failure or total compensation for the year of the failure? IRS guidance does not appear to address this specific question (the revenue procedure merely states it must be a uniform allocation as a percentage of compensation).

Anyone have experience requesting a "minor" modification of a VCP compliance statement? The only example in IRS guidance of a "minor" modification is a compliance statement that listed 200 affected participants; however, after recalculating the failure affected 225 participants. In our situation, the applicant got an IRS compliance statement approving a retroactive amendment adding back in a provision missing from a 2015 restatement. The compliance statement was issued over 150 days ago. The applicant recently discovered an inconsistency between the retroactive amendment and the plan's historic administration, and believes additional clarifying language (no more than a phrase or two) should have been added to the retroactive amendment to achieve the intent of the VCP filing and conform the plan document to the plan's historic and ongoing administration. At bottom, we think the fix of the document could have been better, but this is a document issue only; the plan's always been operated as it should have been. Has anyone had success requesting a "minor" modification of a VCP compliance statement under similar circumstances?