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  1. Client forgot to enroll an eligible employee and has missed deferrals in a tax exempt 457(b) plan that the employer participates in. My understanding is that, since there is limited opportunity to submit corrections to the IRS under Section 4.09 of EPCRS, that practitioners interpret that to mean that corrections for 457(b) plans can generally follow those prescribed under EPCRS for qualified plans. So in this case we would corrective contributions for the participant's missed opportunity to make a contribution/invest (e.g., 50% of missed deferral) as under EPCRS.
  2. Employer entered into a new collective bargaining agreement a couple of years ago that provided additional non-elective contributions and full vesting under the 401(k) plan (more generous than what the plan provides). The Plan was not amended to incorporate these negotiated terms of the CBA. What is the fix? Technically, there is no plan failure. Rev. Proc. 2021-30 states that "VCP provides general procedures for correction of all Qualification Failures: Operational, Plan Document, Demographic, and Employer Eligibility." The plan has been operated in accordance with its terms, so there is no "Operational" failure, and it doesn't violate Section 401(a) by its terms, so there is no "Plan Document" failure. There is no failure to satisfy the requirements of ยง 401(a)(4), 401(a)(26), or 410(b) ("Demographic" failure) and the employer is eligible to establish a 401(k) plan, so there is no "Employer Eligibility" failure. Thus, I read EPCRS to say that there is no relief available for this scenario. Is that accurate??
  3. Hi to All, If you saw the John Hancock webinar today on the EPCRS program and how to use it, you will understand where my questions originate. There was a lot of coverage of enrollment errors and the corrections seemed quite complex. Actually I should have said that the corrections themselves are not that hard, once you can identify what kind of error it is, what kind of money is involved, how long ago the error occurred, whether or not automatic enrollment is a factor, etc. That's the harder part - figuring out which kind of error you have. My question is, how would I even know an error had occurred, and ultimately, who is responsible for figuring it out and correcting it? Our non-producing TPA shop does traditional, annual reporting for retirement plans of small employers. We are not usually involved in periodic enrollment meetings after the plan is established. Unless the employer volunteers the information or the participant complains to us, we would never know if someone was enrolled late. If the employer distributes an enrollment kit in May to someone who was eligible on January 1, and that person starts deferring on June 1, all I will ever see is the total deferred for the year and the total compensation for the year from the return of the annual census data. I don't ask and I am not given any data about when participants begin deferring. I suppose I could go look at each new person in the plan, if a platform like a John Hancock is involved, and see when deferrals commenced but even then, I wouldn't know if the person initially declined and then changed his mind later on. What are the rest of you doing? Are you closely involved with the enrollments of your client's employees? Do you collect copies of the enrollment forms or the forms declining the opportunity? Is this your responsibility as a TPA? Do you rely on the investment advisor to be on top of this? Outside of informing the client and the HR department (if any) of their responsibilities when the plan is first installed, do you follow up to see if procedures are actually being followed? My colleague here says he has done these corrections a number of times over the years, but it was because a savvy participant complained about not being enrolled properly, not because he as the TPA discovered the error or because the employer let him know there was a problem. I could probably count on one hand the number of times I made these calculations and it was so long ago I don't even remember the circumstances. We would like very much to know how other firms are handling this issue. Thank you.
  4. An error was made in a plan document, which resulted in the omission of a year of service requirement for matching contributions. Client is asking to submit VCP filing asking IRS to approve a retroactive amendment, or to approve the calculations for making up the missed contributions. Can you submit alternative correction methods in one VCP filing for the same error? Essentially, "if not this, then that"? Thanks.
  5. A plan has a safe harbor match allocated on an annual basis. The client has realized that there were 4 employees eligible on January 1, 2018 who have not been given the opportunity to defer. I will advise them on the correction under EPCRS, which is a 25% QNEC based upon 3% missed deferral and a missed SH Match plus earnings. They will notify employees as required. Question - Is the compensation based upon compensation from 1/1/2018 through the date the employee is given the opportunity to participate? I would think yes, but when I calculate the annual safe harbor match for ALL employees at year-end, this portion of compensation will be included in the calculations. It would seem as though the affected employees will get matched on this compensation twice. Is that how it is meant to work? Thanks!
  6. A client maintains a non-safe harbor 401(k) for non-union employees and contributes to an MEP for collective bargaining unit members. In 2015, one of the union members stopped paying dues, even though he remained covered by the collective bargaining unit. As a result, (1) the employer stopped MEP contributions, and (2) the erroneously allowed the ineligible employee to begin deferring and receiving match under the 401(k) plan. The employee has satisfied the matching contribution vesting requirements. The plan has over 350 participants, and this is the only participant affected by the error. The participant has an account balance of around $12,000 and total plan assets are around $9M. QUESTIONS: Is this eligible for self-correction as an insignificant operational error? Can it be considered insignificant even if we have to issue corrected 1099s for 2015, 2016 AND 2017? Are there any correction methods available in this case OTHER THAN returning contributions and issuing 1099-Rs? Thanks in advance for your thoughts.
  7. Plan is safe harbor non elective with a 100% of 2% non safe harbor match. A rehired employee was not giving the opportunity to defer for 2017. I know that the fix for the deferral piece is 50% of the 3% plus the 3% safe harbor. My dilemma is the match piece. If my brain is working correctly, I understand the regs to be... 2% match. The employee's missed deferral was 3% (because of safe harbor non elective) so the match is 100% of 2%. Can I get a confirmation or denial? Thanks
  8. We have a plan that has allowed all participants into the plan early for more than 20 years. Both HCEs and NHCEs were allowed in early. If the early inclusion of participants is significant (or assumed to be significant), can we adopt the retroactive amendment under SCP? Does the requirement that significant operational failures be corrected within two years apply to corrections by plan amendments? Assume there is no discrimination issue.
  9. I have a former client that established a nonelecting church plan that's a DB plan. The plan was never restated for PPA. Does anyone know how I can refer the client to a qualified firm to both do the restatement and also file under EPCRS?
  10. I have a situation in which a church defined benefit pension plan has two participating employers that have been giving participants contributions and have adopted the plan without an official participation agreement. One plan has been operating in the plan since the spring of 2017 and the other since the mid 1980's. I believe SCP might be able to be used for the first issue but VCP for the second. Any thoughts? The employers provide contributions on behalf of participants.
  11. I have a client who has just closed a U.S. DOL investigation for (very) late deposit of prevailing wage contributions. They have now paid in all of the unpaid contributions and paid and allocated estimated interest based on a method approved by the DOL investigator, paid corrective distributions to former employees and they have received a closing letter. I expected that these late contributions would also be an operational defect that would require a VCP filing, and my client is prepared to do this. My biggest concern had been whether the (DOL-approved) method of allocating interest would be acceptable to the IRS. But, I am now wondering if there is in fact any operational defect, because I cannot find any plan provision that specifies when these contributions have to be made. The plan has a schedule to the Adoption Agreement that lists the prevailing wage fringe benefit portion to be paid for each covered hour. The plan provision for Time of Payment of Employer's Contribution states: "Unless otherwise provided by contract or law, the Employer may make its contribution to the Plan for a particular Plan Year at such time as the Employer, in its sole discretion, determines." I don't think the "unless otherwise provided..." language incorporates the statute or contractual language by reference. There is also plenty of typical plan language about when annual addition are credited, and when contributions must be made to be deductible for a plan year, or to be taken into account for testing, but those aren't really the issue here. State law does in fact require the contributions to be made quarterly, and there clearly has been a violation of this law. If the plan document doesn't have a deadline for the contribution, is there an operational defect when contributions are made later than the statutory or contractual deadline? I had assumed the answer was yes. But after parsing all the plan language relating to employer contributions, I am now thinking that the answer is no. And that would mean there is no operational failure that could be corrected under VCP. Agree or disagree?
  12. Filing for excise tax refief for missed RMD (through VCP) and struggling to correcting answer this: At least one affected participant is either an owner-employee (see IRC Section 410(c)(3)) or, if the plan sponsor is a corporation, a 10 percent owner of such corporation." Plan sponsor is a partnership. Some partners are professional corporations. Affected participant is the 100% owner of her P.C., which is less than a 10% partner of the partnership sponsoring the plan. For 401(a)(9), she is a 5% owner because Section 416 is cross referenced for that determination and those rules apply ownership test separately for members of the affiliated service group. But it isn't clear to me whether the VCP form question is intended to refer to the partnership that sponsors the plan or would include owners of the P.C.s that are members of the affiliated service group (and related participating employers in the plan). I'm not seeing an answer in either the form or the definition in 401(c)(3). There is no reference to 416 so I am inclined to apply the ownership test only at the partnership level. Can you offer any insights?
  13. Quasi-governmental entity/employer affiliated with a City enrolls its employees in a State retirement plan. 10 years later State Retirement System determines employer is not eligible for State plan and refunds all contributions to employer entity. Employer wants to propose a correction to IRS that would retain tax deferred "qualification" but facts don't seem to fit a VCP submission. Where do you go (who you gonna call) for such a unique situation? Please don't say "good ERISA attorney" without providing a specific name because I already meet the ERISA attorney part. Thanks
  14. All too common situation of definition of compensation in plan document not being applied operationally. Has anybody had any success in getting the good folks at EPCRS to accept a retroactive document correction?
  15. I'm not sure whether this issue is better placed in EPCRS 403(b) or Form 5500 because it applies to all. A client has a 403(b) plan that is now a large plan requiring an audit. The auditor uncovered several operational errors and a lack of adequate procedures to make sure the plan is compliant. The client has investigated the 3 prior plan years and has found similar errors. These are pretty typical errors: the employees may not have been made aware that they were eligible to defer upon hire, some employer contributions didn't start as soon as the participant became eligible for them, some late deferral deposits, contributions weren't always calculated using the correct compensation definition, some investment directions were not followed and contributions were invested in a default fund. The client will be correcting operational failures under EPCRS with a VCP application, with assistance of counsel. They expect to correct the late deposit of deferrals by calculating interest and depositing in participant accounts, without a VFCP application. But here's the more immediate issue. The 5500 is now overdue because the auditor will not issue a report. So a new late filing error has occurred and the penalty amount will continue to increase. The auditor wants all of the failures quantified, and won't proceed until the entire 30 year history of the plan has been investigated to uncover all errors. This appears to be unique to the first audit year because opening balances have to be verified. But when corrections are made, aren't they deposited and credited to the account in the current year? I have submitted many VCP applications that correct for multiple years (for large plans) and have never heard that the 5500 should be redone for prior years because the errors mean that the opening balances aren't correct. Is an auditor able to issue a qualified opinion in these circumstances - stating the types of errors that were found and indicating that the sponsor is working with counsel to make appropriate corrections? May be a separate question whether the DOL/IRS would accept this. There has to be a way to move forward and get the 5500 in (even if it needs to be corrected later) before the investigation is completed for prior years, the VCP application filed and a compliance statement received.
  16. Partner set up and contributed to a 401k plan in her sole name as a self-employed person. Fortunately partnership had no common law employees so we're proposing to fix under VCP via retroactive adoption of a plan in the name of the partnership. Is this a plan document or an employer eligibility failure?
  17. I have a client that implemented a Profit Sharing Plan at the end of 2016. The plan document was drafted with the addition of a 401(k) and Safe Harbor feature, to be effective February 10, 2017, as this was expected to be the first pay date from which deferrals would be withheld. The plan sponsor decided to switch platform providers late in the game, requiring all new contract paperwork, and the implementation process in still under way. Now, the expected deferral start date is May 10, 2017. Employees had previously been provided with an SPD and Safe Harbor notice referencing the February 10th date as the date on which they could start deferring. I did not think that we could amend the effective date of the deferrals that was already in a document signed prior to the end of 2016, which left me thinking that this was a deferral failure that was going to be corrected within three months and so I only needed to provide a notice to the employees (there is no match). Questions: 1) The notice requirement under EPCRS for the deferral failure must reference deferral percentages that were to be withheld. Enrollment meetings have not occurred yet so no deferrals have been elected. So, am I going about this all wrong - is this not the way to correct? 2) Is it possible to just amend at this point to change the effective date of deferrals and safe harbor to be May 10, 2017 with no additional notice or correction for the employees? The thing is, I am sure that this happens ALL the time with start-up plans. For a multitude of reasons, the plan may be delayed in getting set-up and ready for deferral submissions or enrollment meetings are delayed. 3) What do you do in this situation where deferrals don't start on the effective date referenced in the plan document? Thank you so much!
  18. Greetings, Is it recommended to refrain from depositing calculated corrective contributions until after a VCP submission has been reviewed and blessed by the assigned reviewer? On the one hand, if the IRS reviewer does not agree with the amount of the corrections, and the corrective contributions have already hit affected participants' accounts, it would make matters more difficult. On the other hand, if the deposits are not made until after confirmation by the IRS reviewer (which could be months later), the amount of lost earnings would be for a longer period and at a greater expense to the plan sponsor. Assuming deposits are not made until after the IRS gives its blessing on the proposed corrections, how far out is it recommended that the lost earnings be calculated to (i.e., the end period for the interest calculation)? Thank you!
  19. Plan Sponsor applied an incorrect match % to certain employees for a 3 year period (in addition to failing ADP/ACP). All employee defferrals were prcessed timely and properly. Correction for the incorrect matching % is being done via VCP. Would this also require a VFCP filing? My take would be yes, since a prohibited transaction occured as a result of the incorrect match (and not corrected with the year) and for the lost earnings. However, I do not see any applicable boxes on the VFCP model application. Any suggestions?
  20. Payroll was not basing the deferral election percentage on Gross Pay, but rather the Net Pay for the Roth contribution. Taxes were calculated correctly using Gross. Result is the Roth contribution is less than what was elected on the deferral election. Goal for the participant was to have the same contribution amount for pre-tax and Roth. Example: Gross Pay $1,000 Roth Election 4% ($40) Taxable Income $1,000 Fed w/holding (15%) $ 150 Net pay $850 - This was used to determine the Roth Deferral of $34 (short by $6) I'm confident that the result is a "missed deferral opportunity" and can be corrected with EPCRS. Where I'm hazy is what the corrective QNEC contribution should be? It is a 09/30 plan year so the plan year is almost over so there is definitely less than 9 months left in the plan year, so that option is out. So, the only other option is the corrective QNEC. Rev. Proc. 2013-12 states that the corrective QNEC for after-tax contributions is 40% of the missed deferral, 100% of any missed match and of course plus earnings. The relaxed corrections with 2015-28 do not seem to apply to after-tax contributions. Can anyone tell me otherwise and point me in the direction of any guidance that has been issued by the IRS of the appropriate corrective QNEC for after-tax contributions? Thank you!
  21. I have a new client who came to me for PPA restatement and tossed in admn that his accountant had been doing for him. He is a PC sponsoring a profit sharing plan, with no 401(k) provision, and no employees. For the last few years he has made 401(k) elective deferrals from his S-Corp wages, and has made employer contributions up to max deduction amount each year. Would you treat the 401(k) contribution as an "excess allocation" under EPCRS and refund the deferrals back to the guy? I'd love to be able to amend retroactively under VCP, but am not sure this is a 401(a) failure that would allow me to do so. Given that he's made the 401(k) contributions over the last 4 years or so, it would be an expensive correction if I can't amend retroactively.
  22. It was discovered that a few participants in a governmental defined benefit plan had compensation over the 401(a)(17) limit. Benefits were within 415 limits. This resulted in an overpayment for a few participants who have retired but also in employer pick up contributions that were higher than they should have been. There seems to be a good amount of guidance (including last year's revenue procedure) and opinion out there on how to correct the overpayment. BUT How can the pickups be corrected? Assume that they involve years prior to 2015. My immediate thought was that the appropriate correction would be to 'forfeit' under the plan - meaning the employee would not have credit for them - which in this case really boils down to whether contributions would be paid out to a beneficiary if the participant died before receiving annuity payments at least equal to his or her contributions. Then the "Employer", in this case the municipality, would need to make the employee whole for the deduction that was taken from pay in error. The payment to the employee would be reported on a revised W-2 for each applicable calendar year, and the employee would need to re-file taxes for those years. Is there a better (easier) answer? Something that doesn't involve re-filing individual income tax returns? Also, could it be possible - consistent with EPCRS principles - to offset the overpayment by the over-contributions? For example, the plan overpaid you $5000, but you overpaid the plan $2000, so you need to pay back $3000 to the plan. Errors are very small relative to the plan size and involve only a few plan years. The intention is to self correct, not to submit under VCP. (It's understood that the plan wouldn't have reliance on the correction method without VCP compliance statement.)
  23. Is there anything that prevents a plan from submitting a VCP for an operational error while a VCP for a nonamender failure is pending? The plan isn't "under examination" according to the definition in EPCRS.
  24. 401(k) participant whose account included after-tax and pre-tax dollars received an otherwise-proper hardship distribution (i.e., authorized by plan, procedures followed, right amount was paid, etc.), but which was paid entirely out of pre-tax deferrals (i.e., the distribution was paid without regard to the ordering rule requiring it to have been paid first out of after-tax dollars). To pluck some numbers out of thin air, let's say that a $10,000 hardship distribution was paid entirely out of pre-tax dollars, rather than $1,000 after-tax (representing the full after-tax account balance) and $9,000 pre-tax. As a result, the administrator treated the entire $10,000 distribution as taxable and subject to the 10% early withdrawal penalty. But if the first $1,000 had properly come out of the after-tax account, the amount of P's basis in the after-tax account shouldn't have been reduced. So the plan isn't out any money, but the tax hit to the participant was a bit larger than it should have been. To me, it seems reasonable under the general correction principles to fix this by cutting P a check for the amount of the improper tax hit (plus interest), and moving the remaining after-tax dollars into P's pre-tax account. But EPCRS doesn't seem to directly address this scenario. Anyone encountered this before? Thoughts? E: I suppose one might argue that this is, really, a failure to have initially required P to withdraw the after-tax amounts before receiving the hardship, which could be corrected by requiring repayment of the portion that shouldn't have been distributed in the first place. But from the plan's perspective, the right amount (in absolute terms, anyway) was paid out. Any repayment would presumably be made with after-tax money anyway, so requiring that additional steps seems like an overly complex means of reaching the same result you'd get by recharacterizing the remaining after-tax dollars already in the plan as pre-tax...
  25. I posted this issue in EPCRS and didn't get a response so I'm trying again here. Governmental employer with a defined benefit plan that includes mandatory employee contributions picked up by the employer. Handful of employees in an excluded class have been erroneously treated as eligible and pick-up contributions have been made for them for many years. How can we correct? (The employer will need to pay social security taxes for these employees, so we don't want to do a retro amendment to include them in the plan. This would also require a VCP since this isn't early inclusion of otherwise eligible employees) Thanks!
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