Nate S

No, the need for a VFCP "no-action" letter application is what was being bandied about up above, that the corrective action is prohibitively expensive vs the correction itself, but the DOL did refuse to include a threshold below which no filing was necessary when they finalized the program requirements. At amounts of this level, the cost-effective action is to calculate the earnings, pay the excise tax on a 5330, and report the breach on the 5500. The DOL will eventually question it, but you can more easily respond to their compliance check letter than complete and track the VFCP application and supporting documentation. Just make sure that the lost earnings were corrected under the precepts of EPCRS, the DOL calculator is only appropriate when you will be filing a VFCP application; and if this happened in 2020, then the 3% from the calculator is possibly far short of the actual applicable return.

Check the Plan Document, make sure the market rate selection doesn't carry a default min/max window since there are possible 411 issues with too low of an ICR. Otherwise, you could fall-back on the precept that testing is done at a "reasonable" rate, the ICR being an acceptable and reasonable rate by guidance, but nothing says you couldn't find the weighted 5-yr average rate to be reasonable too, for example. Or convert to a BOY valuation and then the market-based ICR becomes a projection.

The timing of the forfeiture seems odd since the benefit was earned during the plan year, start by checking that the document deems it at that time, for an EOY val usually its as of the first day of the following year. An end of year forfeiture or deemed distribution usually implies that they did not earn an accrual in that year. Agree that the participant is in the 401(a)(26) count since exceeded allocation conditions, however I would think only benefitting if not deemed at the end of they year. Vesting has nothing to do with benefitting under 401(a)(26), meaningful is amount only; under 11(g) it becomes part of the substantive condition.

Yes, this has become more common, especially in larger partnerships, it allows the accountant, partners, and Plan Administrator to more effectively collaborate partnership distributions, tax payments, and deferral deposits without making each event a manual process for all parties. But if that hasn't happened here, then I think I would go back to the accountant and ask him to re-envision the K-1 as if the W-2 amount had not been paid as wages, just to ensure the wage expense and employer withholding taxes are properly accounted before performing the earned income calculation to determine the Plan's considered income. Any other massaging of the K-1 & W-2 amounts as is, would be asking the TPA to make accounting/controller-like determinations. Provision of the correct income amounts is a Plan Administrator function, unless the TPA is 3(16) and that's included in the service provider agreement.

Was the W-2 merely the vehicle for the guaranteed payments? Usually see this for the purpose of making it easier for the partner to make his withholding payments & deferrals. If so, ask the CPA to confirm that the amount, plus any other partner's similar payments were not double-counted as wage expenses before arriving at the business income, then use only the K-1 income as the earned income. One give-away of this is that the Withdrawals and distributions in Part II Section L are $150,000.

VFCP - DOL won't impose additional civil penalties; allowed use of DOL lost earnings calculator; summary documentation reporting for "no action" letter application; can treat excise tax under IRS requested de minimis guidance (i.e. no Form 5330 to be filed, calculated tax added to corrective contribution to trust) w/o VFCP - would need to correct under EPCRS principles (DOL calculator not appropriate unless administratively convenient and no investment option returning >3%); DOL maintains right to impose additional civil penalties; full supporting documentation for "no action" letter application; Form 5330 required and excise tax payment due for all circumstances It should also be noted that ANY late deposit instance should be reported on the 5500 even if amending a prior period filing; the DOL has warned that failure to not do so can result in disqualification of the filing, which under the new late filing penalty amounts would be abhorrently expensive.

No, the IRS does not explicitly have a deminimis rule, BUT they did request that the DOL add one to the updated VFCP effective 5/19/2006 and to the Amended PTE 2002-51 effective for the same time. In short, if the contributions are remitted to the Plan within 180 calendar days, the excise tax on the lost earnings would be less than $100, and that same amount is also added to the Plan's trust along with the calculated lost earnings; then there is no requirement to separately file a Form 5330 for payment of said excise tax. Again, the IRS hasn't granted an exception, but they did request one be honored by the DOL. And I'll go so far as to espouse that I believe EPCRS contains a reference to the VFCP, so it would then be incorporated back to the IRS by inference. Not once, I have prepared dozens of these and always received a "no action" letter from the DOL, and also approval from the IRS under a VCP filing(Plan in question had multiple issues), and approval under an IRS CAP whereby we disclosed some more recent participant loan issues that were outside the scope of the original examination. That was the IRS' reasoning cited in the response to the DOL that the additional paperwork and processing cost was excessive if the tax was less than $100 It wouldn't be the first time that Ilene has adopted a way too conservative stance that runs contrary to published guidance...

I can certainly understand that viewpoint, and have probably drawn that distinction on another basis. Is the 5% ownership and full-time service enough of a distinction or would their service also have to provide for a certain level of revenue generation? And while we're here, what about under a partnership where the pass-through is already earned income? Specifically law firms, where a junior partner may be limited or outright excluded from some allocation classes such as top-heavy, safe harbor, or a match. Would they then instead be able to fund a plan of their own, to at least make up for those exclusions presuming that if you combined the testing it would still pass non-discrimination?

Do you mean CFR 414(n)-1(b)? I can't find any regulations for 414(o) since (o) is the requirement to provide regulations😁

I'll second what Bill said, but add that even if the amendment and/or resolution didn't address the cessation, then the plan document may include default language to the same in the event of termination. Most likely there is language in there about the creation of a short-limitation year. In any case, explain it to the sponsor and have them give you direction to only use data through 4/25; then share that direction with the auditor. The auditor has ZERO authority over the compliance testing; but some tend to think that just because they are supposed to confirm that it was done, that they are somehow supposed to confirm that it's correct.

No, if they have incurred at least 5 consective breaks-in-service, then they are not "affected participants" and not subject to 100% vesting. https://www.irs.gov/retirement-plans/plan-sponsor/401k-plan-termination Since they haven't taken their monies yet, you'll probably have troubled contacting them or getting them to quickly act; I would in conjunction with the termination notice put them on the 30-day clock to do an auto-rollover of their vested balance. Then you can expense, re-allocate, or restore, the resultant forfeitures to the affected participants and get them paid all at once in a timely manner.

By 'mandatory' do you mean identify the 100% survivor annuity as the 'normal form of benefit' for married participants? This would be fine, but in a pre-approved Plan document, the participant would still maintain the ability to elect an optional survivor annuity without spousal consent; and also, with spousal consent, an alternative of at-least one of the following: one lump-sum; partial withdrawals; installments; or purchase of or providing of an annuity in a form specified by the document (or at a purchase rate equivalent to the accrued benefit). Unmarried participants would the have a normal form of a lifetime, or a period certain annuity; as well as the same alternative aforementioned options. Since all these annuity forms are provided an equivalent value (lump-sum value under 417 notwithstanding); I don't necessarily see the benefit to the Sponsor of getting approval for such an arrangement as you describe. (CBZ or Mike, feel free to correct me here!)The impact of such an amendment may only be prospective, excepting the XX% survivor option, all the prior forms must still be provided for benefits accrued as of the amendment date; so lump sums if available now would still be payable for the current accrued benefit, and either the lifetime or period certain option would remain for the same. Only new participants or new accrued benefits could be so restricted.

Saw a few of these in the dental industry over the last 3-4 years. Buyer purchases everything except the entity itself, seller gets cash and ownership in buyer to reduce buyer's cash outlay. Seller then agrees to service contract wherein buyer provides everything back to seller necessary for practice to continue as was. Then you have a management service group; and in limited cases, sufficient common ownership for ASG! Buyer will usually deny the above; but oddly is also aware enough to stipulate that any 401k Plan needs to be merged into their own.

May be theoretical at this late point, but what do you have that says a Plan even exists at this time? If they've never made a contribution to the CB, then there's no trust, and no qualified plan. Under the old rules, a last minute plan was impossible because you couldn't open an account and make a deposit in time for the trust to exist as of 12/31. Regardless of what you told the participants, SPD, statement (remember, all statements are just estimates until benefits are actually to be paid), etc; the Plan hadn't been properly established and couldn't be effective for that year. If zero contributions were made, then same situation. Rescind any filings, amend for any deductions that were claimed/anticipated, and keep beating that drum until people leave you alone.

The employee is not otherwise excludable due to the zero credit class she is in; 401(a)(26)-6(b)(7)(D) requires that the reason for failing to accrue a benefit be "solely" due to the failure to meet minimum service or last-day requirement. If her exclusion is the sole linchpin to pass (2 benefitting HCE's out of 5 remaining employees = 40%); how did the plan previously pass when there were 6 total eligible? Regardless, you'll need to 11g an accrual to another of the still employed of at least 1/2% NAR. Best to write it so they get that benefit in future years too.

I'll let you know, just as soon as I meet a divorce attorney who can draft a QDRO...

Isn't it supposed to be from the date the participant would have otherwise received had it not been deferred. That's the asset segregation date.

Yes to both. OP wants to question that the deferral should be calculated on the highest total that the employer is allocating to the employee; but all three definitions of compensation are already defined as being net of all other withholdings and FICA/SSDI (Burma/Myanmar, Candlestick/3Com, Shea/Citi Field, picky, picky, picky...)

W-2 and 3401(a) both have the caveat of "wages for the purpose of income tax withholding", which would be the amount payable AFTER SSDI and other voluntary withholdings are applied. 415 says "wages, salaries, fees, and other amounts for personal service... ...to the extent that the amounts are includible in gross income". Gross Income is likewise determined after SSDI and other voluntary withholdings are applied. This is also why that 92% limitation is complete rubbish, an\ actual strict definition interpretation of that limit would mean that you always end up with an 8% cash payment as a result.

This then would be a "disclaimer of opinion", not a valid reason for the auditor to withhold or not sign the reports. From the instructions for Form 5500, Schedule H, Line 3a(3), "Check if a disclaimer of opinion was issued. A disclaimer of opinion is issued when the IQPA is unable to obtain sufficient appropriate audit evidence on which to base the opinion, and the IQPA concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive." This is why this category originally existed, when the auditor couldn't timely, or ever, obtain all the materials it thought was needed, or prove that there was actual wrong-doing and to what effect it impacted the participants. The limited-scope use of this category has become the default, and most audits are physically performed by junior associates who may not have any experience otherwise. Obviously the reports would be full of warnings and whatever notes the auditors wish to include, and management may also include a rebuttal letter of explanation to the audit report if they so desired. But it is not an excuse not to issue the report, if they are reluctant to do so for reasons not supported by SAS 136, fire them for breach, and hire someone who understands the situation and is willing to work with what you have available.

The Dr is largely ok with the investment choices being subject to market influences, whether or not there may be a interest component within the fund/model. What issues could there be with using a 0% ICR for an HCE? Is 411 a consideration since his CB amount will have a lower act eq accrued benefit @ NRA each valuation? Or is that avoided as long as the Plan is not frozen?

Thank you! We will look at alternative ways to draft the allocation formula as well!

A group of physicians is considering a cross-tested combination, 401(k) and cash balance. One owner-doctor is Muslim and is questioning the hypothetical interest on the allocation when expressed as a fixed-rate. He is fine with the 401(k) assets being market-driven, but has concerns about the cash balance allocation. 1. Anyone ever handle anything similar? 2. Can the hypothetical interest be 0 for his allocation class or is that a reduction? 3. Is there a better way to explain the interest part that may avoid his objection?

I would start with the Plan Document regarding service awards to see if this or a similar issue is addressed. Also, how was the award of back pay and reinstatement phrased as to how the employer should treat the period between the initial separation date and the reinstatement date? If they are to be considered active and receive full credit service, then yes they would then meet the last day requirement. The employer would have until 12/31/2021 to make the profit sharing contribution and have it still count as an annual addition to the 2020 plan year. If the back pay is to be treated as wages for service, then yes it should be treated as considered compensation and deferred against. I don't believe you have a correction because the payment is only available as of the award, it was not able to be paid or separated from the general assets of the employer previously.

Let me try to rephrase it then, if you had a top heavy 401(k) Plan with the SHMA as the only employer allocation (but which excluded HCE's and was only used to satisfy the ADP), would the SHMA then be included in the ACP test for the VAT? Does the VAT then trigger a top heavy minimum allocation for any non-key not getting at least a 3% SHMA? If the SHMA was also designated by the document to satisfy the ACP, do you still include it in the test with the VAT?