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Found 23 results

  1. Taking over a 401(k) set up by one of the payroll companies in 2017. It is a law firm organized as a partnership of professional corporations. The three partners did make 401(k) deferrals both years, however the processing payroll company did not include the individual PCs as adopting sponsors of the plan. Think IRS would approve a correction for them to adopt the plan now retroactive to 2017? There are about 50 non-partner employees of the partnership who are in the plan (about 2/3 of them are NHCEs). Thanks.
  2. Hello: first year of employers plan was 2018. The 2018 contribution was as for 70,751.10. Plan sponsor is a sole proprietor. 61k of this was his self employed 401k/sh/and er ps 1750 was his spouses SH and er ps The remaining 8k is for his rank and file sh and er ps. Questions: 1) I assume he goes through VCP to correct the late contributions, correct? 2) How do we impute lost earnings? I would expect to find the market lower today than 10/15/19. 3) Any issues with deductibility? I think we need to amend 2018 return for the contribution and deduct in 2020. 4) any other issues with 404 and 415 by making the 2018 contribution in 2020. The 2019 contribution will be made by the 10/15 due date.
  3. 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.
  4. We filed a VCP for late RMDs in May. Case has not been assigned. Waiver of excise tax requested but what do you recommend we tell the distributee regarding his tax return due April 15? Doubtful we will have an answer by then. Considering giving him a letter to attach to his return.
  5. 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.
  6. 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?
  7. 401(k) plan document reflects the "maybe" 3% non-elective safe harbor option. Plan sponsor received an election form from TPA, selected "I will amend the plan to trigger the safe harbor for 2016", distributed the required notice to participants on a timely basis and actually made the contribution within the requisite period. Sponsor now realizes they never executed the required plan amendment. Anybody have any experience/success with a VCP filing to fix the error via a retroactive amendment?
  8. There is a multiple employer plan that has several adopting employers. One of the adopting employers has been operating under the plan without an adoption agreement since the spring of 2017. Can this be corrected with an amendment because it's still within that plan year or does it need to go through a correction program? Also, one of the adopting employers has merged into another adopting employer, does the merged plan need to sign a new participation agreement or should it be terminated?
  9. 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
  10. Hi, We have a plan that failed to put retirees in pay status for the past 3 years. The plan provides that the lump sum benefits will be calculated using the interest rate as of November preceding the plan year in which the distribution is made. Which interest rate do I use when calculating the missed payments? Do I use 2016 for all plan years (2014, 2015, 2016) since the payment will be made in 2017? or do I need to use the Nov 2013 interest for 2014 payment calculation, Nov 2014 for the 2015 payment and so forth? Thank you.
  11. Have a pending Cycle E2 determination letter application for an individually-designed plan. I am in the middle of the Employee Plans Specialist's review and there will likely be a Closing Agreement matter relating to a missing interim amendment for a prototype plan that was merged into the plan a few years ago. The sponsor knew of same, and it was noted in the cover letter. Nonetheless, there will be some sort of sanction to fix, and I am OK with that. A few days ago, the sponsor indicated that it had not adopted a discretionary amendment to the individually-designed plan that added a Roth feature to the plan in mid-2016. The Roth feature has been implemented, but no adopted amendment to date. I could fix this via a separate VCP filing and pay the VCP fee, because, per the determination letter rules, the plan is not "under examination" re this item. But, would it be possible to save a buck or two and voluntarily raise this new issue with the Specialist and deal with it with the pending other nonamender failure . . . with the hope that the sanction will be baked into same, say the VCP fee of $10,000 or so as the CAP sanction. Or, should I just wait a few weeks, get the determination letter/closing agreement, and then file a VCP application to fix the new issue? Thanks.
  12. Employee took out a 401k loan in April 2016. Loan repayments were never entered into payroll due to oversight on part of payroll coordinator. Loan defaulted due to nonpayment per plan. Employee says she never received notice of any kind regarding the default until receiving the 1099. Employer wants to correct the default so that employee doesn't have to pay the taxes. Can they correct through VCP and where can I get info on how? I'm looking at Rev. Proc. 2016-51 6.07, but not finding it to be much help. Thanks for any assistance you can provide.
  13. 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!
  14. Plan Sponsor of 401(k) plan is filing a VCP submission for other unrelated failures. During course of investigation, it was determined that one of the participating employer never signed an adoption agreement, as required under the terms of the Plan Document. A retroactive amendment was prepared adding the participating employer, along with a restatement of the Plan's adoption agreement. We are preparing a VCP under Form 14568 Model VCP Compliance Statement. Would a particular Schedule/form also be required for this error/correction? Thank you!
  15. 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?
  16. Greetings, I am in the process of preparing a VCP for the below described errors. Where I'm at a loss (despite extensive review of the forums) is (a) Can the correction for the use of the incorrect match be limited to just those participants making deferral (those with "account balances") by using a QMAC instead of a QNEC correction; and (b) If a prohibited transaction occurred as a result of the incorrect match % and the loss earnings, thus requiring a VFCP. FAILURES: 1. Failure to correctly apply the Plan's matching contribution provisions to employees during 2012 and 2013 (Plan Sponsor applied lower matching % to all new employees, despite the Plan language limiting this to only acquired Company A employees) 2. Corrections necessary to pass the non-discrimination tests for 2013 and 2014 due to the three tier matching contribution formula (Plan Sponsor used the wrong matching % in performing tests) Proposed Correction under VCP A. For those participants that received the smaller incorrect match AND that had "account balances" (i.e., limiting the correction only to those participants making elective deferrals). a QMAC (as opposed to a QNEC) could be made under VCP. [i know there's a strong argument this correction should go to all eligible participants - even those not deferring - but such a correction would be astronomically higher] B. Since the incorrect employer match was used, resulting in lost earnings, I believe this would be a prohibited transaction (outstanding match % became plan assets when PS filed tax return) and thus I would propose a VFCP be filed with the DOL (meaning no filing of Form 5330 Return of Excise Taxes). However, looking at the VFCP Application, there is no box to check for "missed employer matching contributions/earnings" Any insight would be most appreciated. Thank you...
  17. A plan's loan policy had a limit of 5 years for participant loans. The vendor issued a loan a couple weeks ago for a 15-year primary residence loan. The plan sponsor does not want to adopt a new loan policy that allows for primary residence loans. The loan is not in default, the end of the cure period hasn't passed. One payment just occurred. Has an actual error occurred that would necessitate VCP? Could this be self-corrected by re-amortizing the loan now to not go outside 5 years or by having the participant pay off the loan now and borrow from outside the plan?
  18. Issue: A loan made to a “disqualified person” (owner/participant) that; 1) exceeds the maximum amount permitted under Code section 72(p), and 2) exceeds the maximum payment period under Code section 72(p). Because the loan was made to the owner (“disqualified person”) over the maximum amounts there is also a prohibited transaction. So, there are two issues. 1. Violation of 72(p) which results in a deemed distribution and can only be corrected under EPCRS/VCP where the maximum period for repayment of the loan has not expired. To permit the Plan Sponsor to report the loan as deemed distribution in the year of the correction instead of the year of the failure or to request relief of reporting the loan as a deemed distribution at all is only available upon request in the VCP application. 2. Fiduciary violation under ERISA where correction is permitted under the DOL’s VFC Program. In addition, the Applicant (Employer), can request relief of the excise tax under IRC section 4975(a). Upon receipt of a compliance letter from the EBSA, the EBSA will not impose the penalty under section 502(l) of ERISA on the amount repaid to the plan. I understand the correction method under EPCRS and the VCP application. My main questions are regarding the VFCP and coordination of these two correction programs. 1. Can you confirm that a Form 5330 would be required for each year of the loan failure. Example; loan originated 2014 and was corrected in 2016. Would there be a Form 5330 in 2014 for 15% excise tax and then an additional 100% since the PT was not corrected in taxable year and the same for 2015 and 2016? 2. When correcting loan failures in regards to the VFCP application are the correction methods set forth in EPCRS Section 6.07 appropriate? Are there any additional earnings calculations that are required? 3. Should the VCP application be done and a compliance statement be received from the IRS prior to submitting the application for VFCP? How does one coordinate these applications? 4. In order to request exemption for the excise tax under 4975(a), I understand that a notice to interested parties within 60 calendar days of the application must be provided; do I also prepare all Forms 5330s showing the amount for the exemption (but not submit them to the service w/payment)? 5. Is there anything that I am missing? For example; is there excise tax besides the one under 4975(a)? Thank you!
  19. Company A and Company B merge on July 1, 2015 under the common ownership of a management company. Company A and Company B each of a 401(k) plan. Since the merger has already taken place, it is my understanding that under the same desk rule, one of the 401(k) plans cannot be terminated and thus the plans must be merged. To date, the plans have been run separately. My question relates to the interplay between the transition period and the submitting a VCP submission prior to applying for a plan merger 1. Transition Period My understanding is that the plans must be merged by December 31, 2016 (a full plan year after the company merger). Is this correct, even if the plans have been operating independently (as they were before the merger) all along? 2. VCP Company A's plan has errors requiring correction under the VCP program. We want to complete the VCP before merging the plan to avoid tainting the Company B plan. However, if the Transition Period applies, what would happen if the DOL does not rule on the VCP submission before the end of the Transition period? Thank you!
  20. A draft document was prepared for review/discussion last fall. This draft document contained a 3% default deferral. Upon final discussion, the client chose to use a 4% default deferral for automatic enrollment starting January 1, 2016. The materials provided to the participants from the investment provider all explained how a 4% deferral would begin if no contrary election was made. However, the plan document that was executed still had a 3% default deferral instead of 4%. It is a calendar year plan. The issue was just now noticed. The question is: Does this necessitate a VCP application to properly fix, or is possible to adopt the 4% in an amendment now, retroactively effective January 1, 2016, as long as it is adopted before the last day of this plan year?
  21. 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.
  22. One of our sponsors acquired interests in a couple of companies late in 2014 and decided to bring the employees of their newly related entities into their 401(k) plan effective as of 1/1/2015. Unfortunately, they neglected to tell us, so no participation agreements were executed. Now here we are in late October 2015. To complicate things, one of the participating employers isn't part of a controlled or affiliated service group with the sponsor, so they also created a multiple employer plan. Obviously we have document and/or operational issues here. The way I see it there are two alternatives: 1) Correct the operational errors using SCP, although I haven't thought about what that would mean or if it would even be possible under SCP, but I'm sure nobody would like this result, or 2) Retroactively restate the plan effective as of 1/1/2015 onto our VS document, incorporate multiple employer provisions, and include participation agreements for the participating employers. Then file under VCP. I have no doubt the IRS would issue a compliance statement on these facts, but I'm looking for a way to avoid the costs of a filing for this sponsor without jeopardizing the qualified status of their plan, but I'm not seeing it! Anyone????
  23. I am taking over a case in which the old TPA says the plan failed ADP and that Excess Deferrals were refunded more than 12 months after the year in which the test failed. They recommend client file VCP to correct late refund with a QNEC (or One-to-One). Here's the interesting part - The ADP test actually passed! (They omitted several HCEs who were not deferring.) The upshot; however, is that participants under age 59.5 received impermissible in-service distributions of deferrals. 1. Would you agree that this an operational violation which requires a VCP filing? 2. What correction should we propose? I'd like to allow employees to re-defer the distributions, but can I get a waiver of 402(g) limit and ADP test? (I doubt it.) Thanks.
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