M.S. Hatlee QPA, QPFC

JenniferOhio is right on the mark by explaining the differences in the examples. It is simply stated in 402(c)(3)(C)(ii) that a QPLO must be due to plan termination or default. Since the situation bvhea describes is neither, it is not a QPLO and the participant cannot avail themselves of the extended rollover period described in 402(c)(3)(C)(i). Since the extended rollover period went into effect I have often wondered whether it is actually better for the terminated participant to default outstanding loans upon termination, since in many cases this provides the participant with a period considerably longer than 60 days to marshal the resources necessary to successfully rollover the offset loan. Then again, all participants are in different situations and what may good for one may actually be a burden for another. One lesson learned here from the participant's (or anyone who advises participants) point of view is that it may be better to leave the funds in the old plan and continue to make payments until the loan is paid off.

The following quote comes from an IRS publication explaining and providing examples of plan corrections. I have emphasized the sections that directly addresse your question, since the rest of the example is a tad bit complex: On January 1, 2010 Jane, an NHCE became eligible to participate in the Vinco 401(k) Plan, a calendar year plan. However, Jane was not given the opportunity to make elective deferrals until April 1, 2010. Jane elected to defer 25% of her $80,000 2010 plan compensation. In 2010 the ADP for the NHCE group was 8%. Vinco made a 10% matching contribution on deferrals up to a maximum of $1,600. During the period from April 1, 2010 through December 31, 2010 Jane deferred 25% x 60,000, or $15,000. Her deemed deferral for the 3 month period of exclusion, on which the corrective matching contribution is calculated, is 8% x $20,000 or $1,600. However, the 402(g) limit for 2010 is $16,500. Thus, only $1,500 of the deemed deferred amount for the brief period of exclusion is used to compute the corrective matching contribution. The 10% match for the portion of the year when Jane was allowed to make elective deferrals (April 1-December 31) totaled $1,500. The 10% match on the $1,500 deemed deferral (taking into account the 402(g) limits) for the period of exclusion is $150. However, the plan provides a $1,600 cap on matching contributions. Thus, Vinco is only required to make a $100 corrective matching contribution, together with earnings. Based on my previous understanding, which (oddly enough) seems to be supported by this example provided by the IRS, I would say that the corrective matching contribution (not NEC) associated with the missed deferral opportunity would be combined with the other matching contributions allocated to the participant for the same plan year and that sum would be subject to the $2,000 plan limit. So, for example, assume your participant received $1,800 in employer match due to deferrals he made in the period when he was given the opportunity to defer AND your correction calculation indicates that a corrective matching contribution of $450 is due to the participant based on the period during which he did not have an opportunity to defer, then the corrective match would be reduced to $200 to keep the total match at the $2,000 plan limit. If you would like a copy of the IRS publication I am referring to, let me know and I will get it to you.

Appleby - Thank you for the reminder of that funky rule! I knew that at one point but, due to a supply shortage, the neurons that stored that bit of knowledge must have been reused for something else. TPApril - sorry for my "half" answer!

The plan document will specify when a terminated participant is allowed to take a distribution. There is another document called a Summary Plan Description (SPD) which MUST be provided tp plan participants at least once every 5 years. You may find this document on-line. If not, the Plan Administrator (likely your employer) must provide you with an SPD on request. This document should explain any distribution waiting period.

So, this is obviously not a SH plan. This means, as BG5150 pointed out, that the match associated with the missed match opportunity is not a QNEC - just a regular match. Accordingly, I believe the match associated with the missed deferral opportunity would count towards the $2,000 limit.

Three main items apply here: 1. As you mentioned, only compensation earned after the effective date of the plan may be used to determine contributions 2. The 415 dollar limit must be prorated based on months the plan is in effect. In this case the 415 limit would be $57,000 x (3/12) = $14,250 3. The 401(a)(17) annual compensation limit must be prorated. The calculation is the same as the 415 calculation: $285,000 x (3/12) = $71,250 As a side note the 402(g) limit is not affected as it is an individual limit based on a calendar year. So assuming a participant has not made any elective deferrals to any other plan (even plans maintained by other employers) the participant can still contribute $19,500 in the last three months assuming that they earn enough during that period to defer the maximum. Many times an employer will want to start a plan later in the year but may not want proration to gum up the works. The solution is to make the plan effective on the first day of the calendar year during which it is adopted (1/1/2020 in your case). While participants can still only defer on compensation earned after the plan is adopted a discretionary profit sharing contribution could be made an allocated on full year compensation. 415 and 401(a)(17) limits would not be pro-rated in this case.

A look at two documents is in order. First, how does the amendment read? If the amendment clearly specifies that the amendment only applies to participants employed on the effective date of the amendment or only effective to participant who earn at least 1 hour of service after the effective date then I think terminated employees would clearly not be subject to the change. However, if the amendment is silent on which participants are affected by the vesting change, there may still be a question (see below). Secondly, read the plan document to see if it is written in such a way as to exclude terminated participants from vesting schedule amendments. If both the amendment and the document are silent on this issue, I think a question still exists re: the effect of the vesting schedule change on terminated participants.

I believe that the "exclusive plan rule" applies to SIMPLEs not to SEPs. It is fine to maintain and make contributions to a SEP and a qualified plan in the same year. The one danger is the 415 limitations as the allocations to the two plans have to be aggregated to determine whether a participant has exceeded the 415 limit. The 404 deductibility limits may also present a problem.

Is it true that another consequence of this type of design is that the plan will be unable to use the ABT to pass coverage? I think the biggest danger with this design is the loss of the top heavy exemption (especially for plans using the matching safe harbor who have high turnover or high workforce growth). Essentially, the top heavy status of the plan will not be determined until the next plan year has already begun. Thus, if the plan flips into top heavy status, the sponsor is stuck with the minimum top heavy contribution for at least one year. I try to steer sponsors away from this dual eligibility safe harbor plan design. If they won't relent, make sure you keep a close watch on the TH ratio and try to warn the sponsor a year ahead about the possibility of the plan becoming TH so they have time to amend the plan.

One clarification which may or may not apply to legot69's situation. If the plan is a safe harbor plan that uses a matching contribution to satisfy the safe harbor requirement, and the plan fails to implement an affirmative election, then I believe the contribution to make up for missed match must be a QNEC.

BG5150 - Thank you for your response. It is indeed true that APPENDIX A refers not to a QNEC but rather to a "corrective employer non-elective contribution" in reference to contributing the match associated with a missed deferral opportunity. I appreciate you setting me straight!! My apologies to legort69.

The final regulations in this area simply changed one element of the definition of QNECs and QMACs. Old definition...QNECs and QMACs had to be 100% vested when contributed. New definition...QNECs and QMACs have to be 100% vested when allocated. It is this change that now allows forfeitures (which, by definition, were not 100% vested when contributed) to be used to offset QNECs and QMACs. So, the answer to your first question is "Yes". Any QNEC, including those necessary to correct certain operational errors under EPCRS, can be offset by forfeitures. Regarding your second question I am going to assume that you are referring to the employer match that an employer must make when a participant has a lost deferral opportunity in a plan that provides for an employer match. Per the EPCRS (Rev. Proc. 2019-19) APPENDIX A section .05, these matching contributions are also made in the form of a QNEC not a QMAC. APPENDIX A section .05 also makes it clear that correcting for a missed deferral opportunity (deferral and match) occurs after other qualification requirements are met (i.e. ADP/ACP tests) and that the ADP/ACP tests may "disregard the employees who were improperly excluded." So, the answer to your second question is 1) the QNECs necessary to correct a missed deferral opportunity and the associated match are not included in either the ADP or ACP test, 2) since the corrective contributions have to be made as QNECs they must be 100% vested and cannot be subject to a vesting schedule and 3) the earnings are part of the QNECs and, therefore, the employer can use forfeitures to offset them. Michael Hatlee, QPA, QPFC

What does the Loan Policy and the Promissory Note say, if anything, about this situation (e.g. can a beneficiary continue to make payments on a deceased ppts loan? May want to check these documents.