Search the Community

This comes from a CPA we work with. I'm not familiar with SIMPLE plans, so hoping others here can help. The client had a SIMPLE 401(k) plan, with the 3% match. The owner somehow managed to start automatically sending money from her personal checking account to the SIMPLE plan on a monthly basis. Normal contributions were made through the company, no excess from that. No match was made on the personal funds. It started in September 2022 and she discovered the error recently. About $5500 in 2022 and again in 2023. Can this be self-corrected by removing the personal funds with earnings?

We have a client for whom we are doing a self-correction. Salary deferrals were not deducted from bonus wages per terms of the Plan plus the applicable matching contributions. However, an HCE doesn't want to be part of the correction - wants to waive any funds he is otherwise due under the correction measure. The question is (1) can we allow this ....have him sign a waiver? and (2) would this put the Plan in a worse position upon audit for not correcting the failure in full and in accordance with IRS Guidelines. Is there even a waiver option discussed in the IRS guidelines on correction? Any thoughts are welcome.

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).

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.

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?

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?

Hello all! We have a client that would like to self-correct their untimely participant contribution and loan repayment remittances in lieu of filing under VFCP. The client is well aware of the potential liability they may face in the event of a plan audit should they choose to forego the opportunity of receiving a "No Action" letter from the DOL via acceptance of a VFCP. As I read in EPCRS, you can use an actual earnings method, or the highest performing fund method to determine the lost earnings on the late remittances. I am probably over analyzing the situation, but would we use the actual performance rates for funds i (i.e. returns published in Morningstar) to determine the highest performing fund, or somehow determine the fund performance within the plan? Depending on fees, withdrawals, contributions, etc., the "Plan" fund returns may be greatly skewed in comparison to actual mutual fund performance for the fund as reported online on Morningstar, Yahoo! Finance, etc. Additionally, can you pro-rate the highest performing fund percentage? For instance, if the start date of the untimely remittances was 1/21/2013, but I get the highest performing fund for 1/1/2013 - 12/31/2013, can I assume that the contributions were invested for the year from 1/21/2013 - 12/31/2013 at a pro-rated share of the highest performing fund (i.e. contribution was invested at rate compounded over 1/21/2013 - 12/31/2013)? Any help is greatly appreciated. I am tired of debating with myself on this issue Thanks! Wickedp1