S Derrin Watson

I should point out that FIS/Relius users should already have received their opinion letters and that the document system has been up and running since January 31. Dan McNamara and I are looking forward to giving a two-day web seminar going in depth into the 403(b) offerings March 24 and 25.

My name is S. Derrin Watson and I approve of Ilene's message. I add that controlled group status unites two employers for all purposes of Code 401. That includes 401(b), where we find the new statute. And, for what it's worth, I don't take off my controlled group hat except when I go to church. 😀

You're welcome.

Looking at the PPD document, one could, consistent with the limitations on the describe line, enter "A Flexible Discretionary Match and a Rigid Discretionary Match." You are correct that any year the flexible formula is not used, there would be no need for the participant notice. But say, for example, one had a rigid match computed on a payroll basis (a parameter specified in the document), and at the end of the year the employer wanted to true it up. The true up would (only) be possible because of the flexible match, and that would require the notice.

So people understand where this is coming from, the IRS told document providers in May of 2020 that discretionary match formulas had to spell out their allocation method, in accordance with the regulation mentioned earlier in this thread. As we discussed the issue with the IRS, this would take away the flexibility, for example, to have different rates of match for different employee groups, or to choose operationally the period used to compute the match. After protests from document providers and the American Retirement Association (and others), the IRS ultimately relented. The settlement required that language appear in the adoption agreement. Originally, that language was to read: To the extent a Discretionary Matching Contribution applies and the Employer makes such matching contribution to the Plan, the Employer must provide the Plan Administrator and Trustee, if applicable, written instructions describing (1) the matching contribution formula, (2) the computation period(s) to which the matching contribution formula applies, and (3) if applicable, a description of each business location or business classification subject to separate Matching Contribution formulas. A summary notice of these written instructions will also be provided to the participants. The instructions and participant notice must be provided no later than the time the Matching Contribution is made to the Plan. This language ended up being modified in early June, allowing for a communication (as opposed to a "notice") to the participants to be delivered no later than 60 days after the date of the last matching contribution. The notice only needs to be given for years the employer actually makes the discretionary matching contribution. There likely is slight modification in each provider's document, but the substance should be similar. The IRS made it clear that this settlement applies to the third restatement cycle. We may see the end of flexible allocation of discretionary contributions in the fourth restatement cycle, but that's down the road. The FIS approach was to offer two different discretionary matching formulas. One, what we called a "flexible discretionary match," is wide open on allocation methodology. You can have tiered matches. You can choose each year the period to be used in computing the match and whether you true it up. You can have different formulas for different groups. But the price of that flexibility is you have to give the notice. The other, what we called a "rigid discretionary match," specifies the computation period and allocates according to a single matching formula applicable to all participants benefiting from the match. You can change the limits on match and the match rate from year to year, but what you choose must apply universally for that year. The rigid match (which is still much more flexible than a fixed match) does not require a communication to participants. To the concern "what's the point of another notice," I understand and sympathize. But the IRS has broad latitude in issuing opinion letters for preapproved plans, and this was their decision. I appreciate their willingness to compromise on this issue. I am writing this as a private attorney, and not as a representative of FIS. The opinions expressed are my own. (That said, I do work as a contractor with FIS and am proud to be a part of their Relius document team. I participated in the design of their documents, including in handling this issue.)

She did not speak about 403(b). I think it could be argued, extrapolating from her comments, that the 403(b) deadline is 12/31/21, but until we get something more definite, I prefer the more conservative approach of 12/31/20 for provisions effective in 2019. That's still plenty of time to handle it.

Treasury Official Gives Favorable Interpretation of 401(k) Hardship Amendment Deadlines for Volume Submitter and Prototype Plans And suggests there may be more to come At the ASPPA Annual Conference on Tuesday, October 22, 2019, Carol Weiser, Benefits Tax Counsel at the Treasury, discussed recent concerns about the deadline for preapproved plans to amend to conform to the recently published final hardship regulations. In effect, she said that the deadline is the due date of the employer’s income tax return (e.g., Form 1120), plus extensions, if any, for the tax year which includes January 1, 2020. This is true even if the amendment was put into effect in 2019. This gives us more time than many of us had feared, based on a conservative reading of the final regulation. She gave three examples to illustrate Treasury’s view. In each case, assume the employer is a C corporation and the corporation does not extend the return. Assume a plan sponsor with a calendar year fiscal year implemented the mandatory changes of the regulations in 2019. The deadline is the due date of the 2020 return (April 15, 2021). Assume a plan sponsor implemented all of the changes on June 1, 2019 and has a fiscal year and plan year that ends June 30. The deadline is the due date of the employer’s return for the tax year ending June 30, 2020 (October 15, 2020). Assume a plan sponsor delays implementation of the mandatory changes of the regulations to the latest possible date, which is distributions made on or after January 1, 2020. If the plan sponsor has a tax year that begins on February 1, then the change to the plan would be effective for the fiscal year beginning February 1, 2019 and ending January 31, 2020. (May 15, 2020). She added “We are still looking at whether there is anything else we should be doing to consider whether [the third situation] is perhaps too short a time frame given when we were able to issue the final regulations – so something that we are still looking at, so stay tuned for that.” This offers the prospect of a later announcement of a later, or perhaps fixed deadline, unrelated to tax return due dates. While Ms Weiser prefaced her comments that this was not an “official” pronouncement of the Treasury, the context of the statements put to rest the concerns of those in attendance that the deadlines for calendar year taxpayers might be in early 2020. https://www.erisapedia.com/static/HardshipAmendmentDeadline.pdf

So we are clear about what is involved, each of the 21 plans will be tested for coverage for each year. Of course, the deferral, match, and nonelective elements of those plans must be broken out and tested separately, particularly if there are different eligibility or allocation conditions. For each plan, the numerator will consist of the employees who benefit from that specific plan. The denominator will take into account all nonexcludable employees from all the employers (based on the eligibility conditions of the plan being tested). If a plan does not pass the ratio percentage test, and you need to perform the average benefit test, then for purposes of the average benefit percentage test (only), you will take into account all nonexcludable employees and all plan maintained by the controlled group (even though you cannot permissively aggregate those plans for other purposes. And by the way, if one of those plans has nonelective contributions which require the general nondiscrimination test, you must rerun the nondiscrimination testing taking into account all the nonexcludable employees. You don't need EPCRS to perform the testing correctly. What you do need is time, data, and somebody willing to pay for the work. And if every plan and subplan passes for every year (which it conceivably could if each company has a similar percentage of HCEs and NHCEs), you heave a huge sigh of relief. And if one of the subplans for one of the years does not pass, you have a demographic failure for that plan. Demographic failures can only be corrected under VCP. Note that it is perfectly acceptable to have some plans ADP tested and some safe harbor, so long as each can separately pass coverage. But, if you have HCEs that participate in more than one plan, that complicates your testing. Or, as an alternative, you could consider putting the whole shooting match under VCP and work out more realistic approach. The choice is yours.