PensionPete

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.

I believe it is considered an incomplete filing and is treated as having "not been timely filed" with penalty and interest accruing immediately, and, I think this applies to a filing that does not include a required audit too. I don't think the old IRS "45 days notice grace period" applies anymore.

Curious. If the PE is no longer part of CG / ASG - still no distributable event? Could you make the case that the same desk rule apply? Also would the 401(k) successor plan rules apply to the PE even though there was no plan termination?

Actually, in our situation, the HCE was not an owner, but had negotiated his employment wages/contract w/parent company and felt the windfall he would receive (which made up a considerable portion of the total correction amount) might violate that agreement in "spirit" and was willing to forego the funds. Yes, i know, a surprise.

Thanks guys for the replies. This follows my line of thinking as well. And Luke - we are aware of at least one case where the IRS accepted an HCE waiver - and it was a VCP filing. Not sure if fact pattern matched our case perfectly, but same idea. But our situation isn't really worth the cost of the VCP filing.

We have a client for whom we are doing a self-correction. Salary deferrals were not deducted from bonus wages per terms of the Plan plus the applicable matching contributions. However, an HCE doesn't want to be part of the correction - wants to waive any funds he is otherwise due under the correction measure. The question is (1) can we allow this ....have him sign a waiver? and (2) would this put the Plan in a worse position upon audit for not correcting the failure in full and in accordance with IRS Guidelines. Is there even a waiver option discussed in the IRS guidelines on correction? Any thoughts are welcome.