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  1. We were recently made aware of a late contribution issue with one of our clients when the company was purchased and the new owner started submitting their 401(k) deposits. Due to a payroll software issue, deferral and loan payments have been consistently submitted 2 weeks late since 2006. This is a small plan and the deposits have not met the 7-business day safe harbor. After interviewing the sponsor, we have determined it would be very difficult to make the argument that deposits were made as soon as administratively feasible. With a little extra work, the new owner is using the same payroll system and is now submitting deposits timely. No late contributions have been reported on the plan’s 5500s, nor has the sponsor filed 5330s. The new owner wants to correct the late deposit issue and we are trying to provide some guidance/assistance. Obviously, this situation is a candidate for VFCP, but neither we nor the plan sponsor have data prior to 2014. The sponsor may be able to produce individual payroll data for the last couple of years, but we would need to propose some simplifying assumptions given individual payroll data is not available for more than a few years. This would seem reasonable given that deposits have consistently been 2 weeks late for the entire period. The IRS has been open to less than full corrections where data was unavailable in VCP filings we’ve done. We haven’t had to do any VFCPs where a full correction was not possible. We are wondering if the DOL is open to less than full corrections and some simplifying assumptions with VFCP filings. Given these facts, we have a couple of questions for the group: Has anyone used the VFCP when a full correction is not possible because the data no longer exist? Since we don’t have individual payroll information for all years, is the DOL open to using annual deposit information and assumed annual interest rates for calculating interest due on the late deposits? Other insights? Thanks in advance for any insights.
  2. If a 401(k) plan fails ADP, distributes the excess contributions as required to correct the failure, and in the process HCEs forfeit matches attributable to the distributed excess contributions, as they must, can the employer turn around and provide taxable (W-2 compensation) bonuses to the HCEs with the match forfeitures, for example exactly in the amounts of the individual match forfeitures, without violating the anticonditioning rule of Treas. reg. sec. 1.401(k)-1(e)(6)? Arguably this is OK, because the bonuses are not conditioned on the employee's making or not making the elective deferrals, but rather are conditioned only on some of the elective deferrals failing ADP, since in order for the bonuses to be paid, in the amounts they are paid, both (a) the HCE must have made the elective deferral, and (b) a portion of deferral must be distributed to correct an ADP failure. On the other hand, the employee would not receive the bonus if he or she had not made the deferral to begin with, albeit that the employee did not know at the time he or she made the deferral whether a portion would be returned to him or her as excess and result in a cash bonus rather than a 401(k) match. The reg says that the conditioning can't be "direct or indirect" (emphasis supplied), so maybe what I'm describing is "indirect" conditioning. On the other hand, what is being proposed here is very similar to what you can do with matching in a nonqualified spillover plan matched to your 401(k) plan, although the PLRs blessing those seem to be based on part on the language in 1.401(k)-1(e)(6)(iii) specifically dealing with nonqualified plans, so maybe they are distinguishable on that basis, and of course they are only PLRs anyway.
  3. We use Fidelity as our 401(K) Administrator that allows those age 50 or older to elect pre-tax/Roth and catch-up. The problem is that many of our employees are electing catch up when they will not be maxing out on their pre-tax/Roth IRS limit. We only match on pre-tax and Roth. This leaves us with the issue that what should be regular pre-tax or Roth is being captured as catch up in the payroll contribution side of things. We do not true up at year end or termination to ensure the match is correct so this is one issue. However, I believe this can be corrected with some rule built in to only deduct regular pre-tax and/or Roth until capped out and then catch up deductions would begin. But I am not having much luck selling this. Could anyone share how this is done in your system to avoid this type of issue? We use Workday payroll. Thank you!
  4. I'm trying to wrap my head around this and would love some input. We have a 401(k) plan with qualified employer securities. The plan sponsor is a C-Corporation and is privately-held. The owner formed a new business in 2022 under a separate LLC that they own 100% and hired employees in early-2022. Since the C-Corporation is in a controlled group with the newly-formed LLC, the LLC was added as a participating employer of the plan effective 1/1/2023, recognizing prior service with the LLC. We expect there to be employees that meet the plan's eligibility requirements in July 2023. My question is -- how does the qualified employer securities investment option work with the employees of the LLC? Would the LLC employees simply be treated the same as the employees of the C-Corporation and have the option to purchase stock in the C-Corporation? Or, is there some other piece that I'm missing. ....such as, since the C-Corporation is technically not their employer, would the option to purchase employer securities in the C-Corporation be unavailable? Although, if this is the case, I would presume this would run into benefits, rights and features issues.
  5. I think this is correct, but as a sanity check since it seems harder than expect to find authority on this - if a 401(k) plan is frozen, it's still permissible for participants to take out new loans and hardship withdrawals, correct?
  6. We have a Plan that allows for in-service distributions once a participant has achieved 10 years of service, at any age. Plan contribution sources are 401(k), Employer non safe harbor contributions, and Participant Rollovers. A participant who was under the age of 59-1/2 has received all of his employer and rollover monies and also some 401(k) monies which are restricted. Under EPCRS the correction is to take reasonable steps to secure repayment of the excess amount. We are assuming the participant does not have the capacity to return the funds. In that case, as the over payment to the participant was a premature distribution the employer is not required to make up the difference. It appears upon our initial review that a VCP filing will be necessary (and self correction not available). I would be very much in appreciation if anyone has any comments or thoughts.
  7. Can the required matching contributions to a 401(k) be paid with proceeds from a PPP loan?
  8. Hi! First-time poster, ERISA-newbie here. Here's the situation: Parent Non-Profit Company sponsors a 403(b) plan and Subsidiary For-Profit Company sponsors a 401(k) plan. The company wants to transfer a group of employees from the Subsidiary to the Parent (i.e., within the same controlled group). My question is this: What are the options for transferring assets from the 401(k) plan to the 403(b) plan? I realize that the IRS generally does not allow mergers or transfers of assets between 401(k) and 403(b) plans. I also conclude that transferring employees to the Parent would not automatically create a distributable event in order to rollover assets from the 401(k) to the 403(b) plan, as they are transferring employment to a member within the same controlled group. Thus, there is no severance of employment that would allow for the distribution. I'm exploring other options, including a complete termination of the 401(k) plan, but I'm having trouble finding a viable solution. Any ideas?
  9. If you could create a beneficiary form that allowed participants to check the box for applying this primary bene for ESOP and/or 401(k) and this secondary bene for ESOP and/or 401(k) or check the box for "same" and could work it all out in a logical electronic format, can one beneficiary form (actually two within one) cover 2 qualified retirement plans?
  10. Took over a plan that the document excludes highly compensated employees from receiving the safe harbor match. The plan now wants to change and give the safe harbor match to everyone. Can I amend mid year or do I need to wait until January 1, 2020. Thanks.
  11. Under Rev Proc 2019-19, can we can correct a delinquent loan that has not yet been defaulted? The Rev Proc says that a “defaulted loan” is any loan that is not repaid in accordance with plan terms. Can SCP be used to correct a loan in which several loan payments were missed because the employer’s payroll messed up and failed to withhold the loan deductions? The cure period has not expired so there is no default yet. The question arises because the Rev Proc states that it applies to “defaulted loans” and does not mention delinquent loans. My thought is that the term “defaulted loan” is being used differently than the conventional definition in the Rev. Proc. and we may correct a delinquent loan. Thanks in advance for any thoughts. Rev. Proc. 2019-19, Section 6.07(d) states: Defaulted loans. A failure to repay a loan in accordance with loan terms that satisfy § 72(p)(2) may be corrected by (i) a single-sum corrective payment equal to the amount that the affected participant would have paid to the plan if there had been no failure to repay the plan, plus interest accrued on the missed payments, (ii) reamortizing the outstanding balance of the loan, including accrued interest, over the remaining payment schedule of the original term of the loan or the period remaining had the loan been amortized over the maximum period that complies with § 72(p)(2)(B), as measured from the original date of the loan, or (iii) any combination of (i) or (ii).
  12. I have a client who terminated their existing plan and transferred to a PEO. A final 5500 Form was completed with a short plan year from 1/1/2018 to 6/11/2018 (I'm assuming this is the date all assets were transferred to the PEO plan with the plan number as 001). The client now wants to move out of the PEO and start a new plan sponsored by his company (same EIN as the prior plan) under plan number 002. Since the last distribution date of the terminated plan of the Plan Sponsor is less than 12 months, is there a successor plan issue, if the effective date of the new plan is 1/1/2019? FYI - This is not a safe harbor plan. If this is a successor plan issue, is the resolution to have a short plan from 7/1/2019 to 12/31/2019? Thank you for any input.
  13. Physician works for hospital as W-2 employee and maxes out in the hospital 401(k); same physician also operates small clinic as Sch C using off-duty nurses (1099 workers) and has SE income from Sch C. Can physician establish SEP for himself for SE income from Sch C? if yes, do 1099 workers have to be included in SEP? Is physician limited on SEP contribution due to participation in 401(k) at hospital? Thanks!
  14. A participant with a TEFRA 242(b) deferral election has died with a substantial deferred MRD balance. He is currently in the middle of a fixed 30 year installment schedule. (Died after RBD.) If Spouse beneficiary revokes the installment schedule, this will revoke the 242(b) election. Question is: Is Spouse then required to take the make-up MRD distributions of the participant within 2 taxable years, or do the make-up MRD distributions ONLY apply to the MRDs that the BENEFICIARY has deferred AFTER the participant's death? ERISA Outline Book indicates only the post-death MRDs would have to be made up, but I have not found a supporting reference for this. Thanks!
  15. Client has 26 pay periods per year, resulting in two months (Mar & Aug) having three pay dates. The clients payroll system is unable to process voluntary benefits, including 401(k) deferrals on a 26 pay period basis (not sure why, just what I've been told). As such, although there are 26 pay periods per year, deferrals for the retirement plan are pulled from only 24. This fact has been widely communicated and is standard knowledge to employees. Question: has anyone seen anything in the code that would prohibit this arrangement? I'm slightly concerned for those employees who elect a % deferral, as their total deferrals for the year will be slightly less than the % they've selected due to the two additional pay periods not receiving any deferral withholding. Thanks in advance for the assistance.
  16. One of our current plans is asking about the possibility of adding a Cash Balance to their existing Safe Harbor 401(k)/Profit Sharing Plan. They are a medical practice with 115 participants. 10 Doctors and 105 non highly's. They currently have a SH Match with a Profit Sharing in place to maximize the Doctors allocation. They are wondering if it would be possible to add in a Cash Balance plan for the Doctors as they wish to put away a higher annual contribution. I do not have much experience with CB plans so i am wondering if this is possible? And if so how many of the NHCE's would need to be included in the CB? Also of note, they may be merging with a group of 4-5 other medical practices a couple of years down the road possibly becoming a controlled group. The other practices have plans in place however I don't know if any of them are CB plans. I know that they all have 401k plans in place but i don't know if any of them have CB plans as well. What type of issues if any could arise in this situation?
  17. A U.S. 401(k) participant is married to someone who resides in India. Originally when she filled out the 401(k) beneficiary form she left the money to someone else. Once she was told that she had to get spousal consent to leave him off, she filed a new beneficiary form with the same beneficiary designating herself as single. What are the ramifications of this to the plan sponsor?
  18. One person 401(k) plan wanted to move investment companies in 2010, was advised he had to terminate plan and adopt a new plan. Participant was less than 59 1/2 and no distributable event. Assets were rollover over to IRA and never withdrawn, it is still in the IRA, so apparently no tax consequence. The new plan is terminating now in 2018. The owner wants to fix the failure in the first plan. What is the fix at this point? Can he ride the statute of limitations and do nothing? Appreciate any insights! Prior discussion here: https://benefitslink.com/boards/index.php?/topic/56188-successor-401k-plans-correction-thoughts/
  19. Employee was hired on 1/15/18. Employer laid off employee on 2/15/18. Employee was rehired on 5/7/18. Plan has 90 day service requirement to be eligible for the plan. Contributions can start on 1st day of the month following the month when 90 day service requirement is reached. I've seen plenty of examples if the employee terminates/quits/is fired/etc. Is a layoff viewed in the same way? In most examples I see, it appears that time from 2/15/18 to 5/7/18 wouldn't even be considered a break in service. Is this correct? My thought is that as of 6/6/18, employee has completed 61 days of service (1/15-2/15 and 5/7-6/6). The time in between doesn't count and 29 days from now, on 7/7/18, the employee is eligible. Entering on the 1st day of the following month would mean employee is eligible to contribute and get employer match beginning on 8/1/18. Can anyone confirm or correct me? Thank you!
  20. I have a situation where Husband owns 100% of one business and Wife owns 100% of an unrelated business. Husband's business maintains a 401(k) plan for it's employees. Wife is an employee of Husband's business. They have a pre-nuptial agreement regarding the ownership of their own businesses, so there are no "direct" ownership issues. We have told them the two businesses are related because they do not qualify for the exception under IRC 1563(e) because the Wife is an employee of Husband's company. She is also a participant in the 401(k) plan her Husband's company maintains...probably the reason she's an employee in the first plan, but that is besides the point. They have come back an said the conditions under 1563(e)(5)(B) are satisfied even though the Wife IS and employee of Husband's business since she "does not participate in the management" of the Husband's business. Their interpretation is that the "and" underlined below means both conditions must be satisfied (employee and participate in management) for the condition to be considered not met. 1563(e)(5)(B) The individual is not a director or employee and does not participate in the management of such corporation at any time during such taxable year; I do not see anything in the Code or Regulations that clarifies this point. I have always interpreted this section to mean that if a spouse is an employee or director, the spousal attribution exception does not apply. I would read the part about not participating in the management as a separate condition. None of the articles I can find on the subject address the "management" language in 1563(e)(5)(B). Seems contrary to the general intent of the rules around spousal attribution to say the spouse can be an employee and participate in the plan, but the spousal attribution rules can be ignored as long as the sponsor is willing to say the spouse doesn't participate in the management of the sponsor. Anyone have thoughts on this? Authority for either position?
  21. An employer allowed an employee to begin deferring in 2017, but they are not eligible until 2018. The employer does not want to use the EPCRS amendment correction method so that the participant would be eligible for 2017, since they would be required to provide a top heavy minimum allocation. If the early deferrals plus gain/loss are returned to the participant, what 1099 code should be used? It seems like it should be a 2017 tax event.
  22. Background: Client hired employee in January of 2017. Employee maxed out deferral with client (including catch up) in 401(k) plan for 2017. Employee also was paid the remaining portion of his 2016 compensation from former employer in 2017, and former employer withheld based on employee's 2016 deferral elections. Excess deferrals resulted. Correction will obviously not be done by April 15, 2018. Issue: What is the correct course of action in this situation? Set forth below are my basic thoughts: Code § 402(g)(1)-(2) and Reg. Sec. 1.402(g)-1(e)(2) clarify that, unless timely distributed, excess deferrals are (1) included in participant’s taxable income for the year contributed, and (2) taxed a second time when the deferrals are ultimately distributed from the plan. The excessive deferrals involved in the Error were not timely corrected because the April 15 deadline had already passed. Accordingly, the Error’s excessive deferrals must be taxed for the 2017 year (i.e. the year contributed) and again when the excessive deferral is distributed from the plan. If a corrective distribution is not made within the correction period discussed above, then excess deferral cannot be distributed until either (1) the distribution is otherwise permissible under the terms of the plan, or (2) the distribution is necessary to avoid plan disqualification under Code § 401(a)(30) (note: there is not a plan disqualification issue under Code § 401(a)(30) because the Error involves excessive deferrals between two unrelated plans and employers).[[1]] Reg. Sec. 1.402(g)-1(e)(8)(iii) allows for distributions of excess deferrals after the correction period to be distributed from 401(k) plan only when permitted under Code § 401(k)(2)(B). As discussed above, plan disqualification is not an issue; accordingly, I believe the error’s excessive deferral can only be distributed if permitted under the terms of the plan (i.e. termination, age 59 1/2, or other Code § 401(k)(2)(B) permissible times). I could be wrong on this analysis and this is my first go tackling this kind of problem so please let me know if I'm not on track and thank you for your help! [Update]: So a little twist on this analysis; the plan document states that the plan will return any excess deferrals by April 15th of next year, which obviously did not occur. So now it appears as though we do have a plan disqualification issue. Trying to find out the correct course now with this thrown in . [[1]] To elaborate on this point, under Code § 401(a)(30), if the excess deferrals aren't withdrawn by April 15, each affected plan of the employer is subject to disqualification and would need to go through EPCRS. However, in the situation involving the described error, the excess deferral amounts involve two unrelated plans with two separate employers. The IRS has stated on its website that “excess deferrals by a participant will not disqualify a plan if the excess is due to the aggregation of the participant’s deferrals to a plan maintained by an unrelated employer.” Accordingly, the fact that Error involves excessive deferrals among two unrelated plans/employers indemnifies the plans from experiencing a disqualifying event because of the Error.
  23. Some 401(k) plans have many different types of distributions besides lump sum on termination of employment, e.g. hardship, non-hardship in-service after attainment of age 59-1/2, in-service at any age from rollover account, partial distributions after separation from employment, and RMDs. If the plan also has Roth elective deferrals and an in-plan Roth rollover feature, an employee's accounts for elective deferrals, nonelective, matching, and rollover may all contain both Roth and non-Roth accumulations. So when a distribution of less than 100% of any account is made, you have to determine the portion that is Roth, and the portion that is not Roth. The 401(k) LRMs allow a plan to provide that distributions of excess contributions after failure of ADP test are made first from non-Roth amounts, but aside from that, I can find no guidance from IRS regarding what it thinks is permissible and have come to conclusion that it is up to the plan and that the plan can also let the participant decide in his/her distribution request form. E.g., plan document could permit a participant who qualifies for an age 59-1/2 non-hardship in-service distribution, who wants to receive $50k as distribution, and who has $100k of Roth and $100k of non-Roth spread over elective deferral, matching, and nonelective accounts to elect to take the entire $50k from the non-Roth. Also, plan could provide that RMDs always came first from non-Roth until non-Roth exhausted. Anyone else given this some thought or found guidance on the question that I am unaware of? One major vendor has a distribution form that seems to permit what I describe in prior paragraph (i.e., employee choice), but I did not find a supporting provision in its volume submitter.
  24. Company A and Company B form a controlled group. Company A sponsors a safe harbor match 401(k) Plan, which Company B has adopted as a participating employer. There is one employee, who receives compensation from both entities, but all of the deferrals have been made through Company A. For purposes of calculating the safe harbor match, I believe I should aggregate the compensation from both companies. For deduction purposes, should the safe harbor match contribution for this person be divided prorata based on compensation, or should the entire deduction be taken by Company A, since the deferrals were made by the employee from his Company A compensation.
  25. When a single employer plan transfers to a Multiple Employer plan, is this considered a termination of the single employer plan? or simply a merger under the Multiple Employer plan? If this should be a termination of the single employer 401(k) plan, would the plan be subject to the 12 month restriction to start a new 401(k) - Participants were NOT eligible to request distributions. Thank you in advance for sharing your thoughts!
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