PensionPete

Curious? Why the reimbursement process? That's strikes me as violation of the VEBA trust - assets reverting to employer? Why not pay claims directly from the trust? What's the purpose?

Those eligible participants who didn't defer, and didn't therefore receive the match, would be entitled to the Top Heavy Minimum. So have to ensure they get the PS allocation that meets the minimum.

Brian, thanks for the practical information. I do believe they don't want a trust situation as well. And part of the problem is their using the terminology more generically, not in the more legal sense that's leading to some confusion. Hope to get a more details on the situation shortly, but this helps clear up my thinking.

Brian, thanks for the thorough response as always. The terms "trust" and "surplus" were the terms used by the client - which did surprise me - and got me going into more of the VEBA/ Trust direction, and they made no mention of a Sec 125 plan (but as you say, that likely exists). The client appears to "set aside" funds in a non-interest bearing account which is why they say they have a "surplus" at year end. I don't know if the account is in the name of the ER or the Plan yet, but I'd assume that could make a difference based on your notes above, as well as if they choose to "invest" those funds in some manner to create additional earnings. I see your point on the FSA issues and agree.

I know enough to be dangerous with regard to the subject matter.... so I understand that surplus assets in a self-funded plan my be used in various ways to cover/lower future costs for participants and cannot be used across different "welfare plans" that cover different employees. I understand that EE contributions will be ERISA "plan assets" and ER contributions may or may not be plan assets depending whether held in trust or general assets of the ER. I understand that ERISA plan assets are subject to the exclusive benefit rule and must be used to benefit participants. What I need clarity on is how it is determined that a single plan exists under ERISA for this purpose. Say you have MEC plan (or MEC + Plan) plus insured dental and vision plans that cover the same group of employees if they so elect. What makes it a single plan whereby any surplus plan assets can be used across all programs? Is is simply the terms of the plan document and the trust agreement that ties them together - just like a Wrap Plan that creates a single plan for 5500 purposes. Or am I am missing something?

I agree - I believe it's not a preventive hardship w/d option, but only for actual damage. Your last sentence, though, was the key.

I have had this done with clients in the past and as long as it was all fixed in the same calendar year and all the reporting is corrected by payroll - it was deemed "corrected" - no harm, no foul. In some cases, payroll had it right, but the deposit to the plan accounts was uploaded incorrectly (an easier situation to correct). We may have documented the correction of the operation error and self-correction via resolution (especially if the plan is subject to audit - this helps). I think the key in administration is to ensure someone(s) is always minding the store and proving that. The split payroll thing between allocating an deferral election between both pre-tax and ROTH (whether deemed or not) will no doubt be an issue next year. I don't see many participants catching it, let alone catching it timely. This needs to be a check/limit at the payroll level.

I just happened to be looking at this issue and my initial thoughts are: I doubt a plan provision can be made operative or inoperative, such as whether Catch up Contributions are allowed, based on the annual census data. That being said, I think you could accomplish the same, without violating the universal availability rule, by actually amending the plan each applicable year to add or eliminate the Catch-up Contribution feature (yes a PIA). I would think the same would apply in the S-Corp situation. Without looking into it too much, I think I agree with #3 as well. Spouse still an HCE, just not an HCI.

I rarely seen it longer than 20 years and often its 10 years - which has always been my recommendation if they really want to go longer than 5 years. In these times, the probability of simply being employed for 10 years at the same employer has dropped considerably and odds are the employee will will have an outstanding balance when they leave. And I find it rare that a participant can pay off a loan in full when it comes due before maturity. So that just goes to Paul I's last point. Most participants don't think thru all the financial consequences if they should suddenly incur a taxable distribution down the road. Also, some payroll providers may charge their own processing fees in additional to the financial / TPA recordkeeper's loan fees. I do remember once that an owner had a desire to assist a particular employee (or family member) which resulted in 30 year term for home loans being added. I think, maybe moreso in the past, that the adoption agreement would get filled out with a 20 or 30 year term automatically entered at time the plan is set up without anyone really having put a lot of thought into that decision (until an EE puts in a request).

FWIW - We recently forfeited the accounts of missing participants (over 20+ years via various M&A transactions) where the plan sponsor had very good reason to believe the SSNs provided for these missing participants were not valid (after years of due diligence trying to locate them). In which case it would be even more difficult to utilize the cash-out features and/or establish IRAs (or even mail out checks or via escheatment) given the lack of any basic information required to establish such accounts. After some informal discussions with the DOL, they recognized this situation was not addressed and suggested that the forfeiture route was an option; provided however, that if any of the missing participants were ever located, their account plus earnings had to be restored. Oh, and they preferred we only forfeited accounts that were less than $1,000.

If I remember correctly, the last year a SARSEP could be established - which allowed pre-tax salary deferrals - was 1996. Surprised a custodian would accept the funds - unless they didn't know the contribution source. Towanda is on point on the correction. The funds have to be distributed out of the accounts. The custodian will be required to file 1099Rs.

Bruce, yes, that would be an easy fix going forward but not really the client's desire, nor the participants. Bill - yes - you are right on that point with the effective availability. Fortunately this impacts only a few participants (small %) each year. I struggle between Paul I's point and Peter's points - for which I think a case can be made to either side of the equation. Looking at future years, I like the idea of true up only. I really hate having to remove funds from a participant's account over what I would refer to as "unintended collateral damage" to the sponsor's attempt to positively impact participants. It present a PR problem for sure. Bri - possible - but I think the true-up feature would override the "payroll calculation" since that is, in essence, the point of adding the "true-up" provision to the Plan. I'd prefer the client to change the formula to eliminate the issue altogether and have the best of all worlds. Especially since it impacts a small # of participants each year. Most participants are intending to contribute at least 2% to get the full match - why would you not. Thanks for all your input. At least I was thinking along similar lines as to the issues this situation raises. I'll report back as to what comes of it ...

Have client with a matching formula that states: On a payroll basis, you get 6% match if you contribute 2% or more. If you contribute less than 2%, no match. (Long history behind how this formula came about.) Obviously most participants contribute 2% or more. Recently the plan was amended to also require that a true-up be made at year end based on annualized wages / deferrals. This was generally to help those who front-loaded their salary deferral contributions. However, based on this formula, what do you do in the case of a participant, who has been eligible for years but not contributing, suddenly starts contributing mid-year at 2% - getting the 6% match each payroll period. When you annualize the formula, this participant's deferral percentage will be less than 2%. This means he is NOT eligible for any match for the year per the formula. I don't think this was the intent when they elected the true-up option. If the formula was dollar for dollar up to 6%, I don't think it would present a problem. I think the client will want to do whatever is the easiest to administer which I believe would be to eliminate the true-up option (and tell participants to not front-load their contributions) - assuming they stick to the formula as is. Taking money out of the participants account is rarely the desired outcome if preventable. Question: Can you apply the "true-up" feature only in situations where you are adding funds, not taking away funds (regardless of HCE / NHCE status)? Although that initially strikes me as problematic - not operating in accordance with the terms of your plan. I do think that most participants who would fall into this situation would more than likely be NHCEs. I think we in the industry generally view the true-up feature as a situation where the employer is always ADDING additional contributions to a participant's account by the employer.

I don't dabble too often in the education assistance world, but I am not 100% clear on whether a sole proprietor (no other employees) can sponsor his own Section 127 plan to take advantage of the recently modified rules on Section 127 plan and student loan repayments. Does the nondiscrimination rule effectively make this unavailable?

I think their database will be looking for the next filing (and the next filing) until the last filing on record denotes either a final filing due to TM or merged into another plan (the wrap). Betting an auto-letter would eventually be sent out to client for each individually health program - since each presumably had a different 5500 plan #. Its an easy check from their perspective for missing 5500s.