TPApril Posted May 9, 2023 Posted May 9, 2023 EE who was under eligible age (21) was given a PS allocation last year (by small plan owner who thought they understood the plan). This has just been discovered upon annual TPA review. They have already filed their taxes and do not want to 'take money away' from that ee. Must it be an 11g amendment, or possible to change eligibility age from 21 to 20 retroactively for prior plan year?
BG5150 Posted May 10, 2023 Posted May 10, 2023 I would just do the 11-g amendment as long as this person s an NHCE. If you retroactive amended the plan for everyone, you would have to re-amend to bring it back to 21. Unless they WANT to make it 20. Paul I and Lou S. 2 QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left.
TPApril Posted May 10, 2023 Author Posted May 10, 2023 They are fine to keep it 20, it's a small family business with limited employees going in and out. I'm just uncomfortable with the retroactive amendment now that the plan year has ended. We get to start plans now retroactively now, but I'm not clear to what extent we can amend existing plans retroactively.
Lou S. Posted May 10, 2023 Posted May 10, 2023 Sounds like a perfect use of self correction by plan amendment to conform the plan's terms to it's operation. (again assuming this is an NHCE and not the owner's kid) Nate S 1
Nate S Posted May 10, 2023 Posted May 10, 2023 You don't need to amend eligibility entirely, you can target the amendment to waive eligibility for employees hired as of XX/XX/2022. Bill Presson, Paul I and Jakyasar 3
EBP Posted May 10, 2023 Posted May 10, 2023 Easy correction under EPCRS by amending plan retroactively to permit early participation for the one affected employee: Rev. Proc. 2021-30, App. B, section 2.07 - (4) Early Inclusion of Otherwise Eligible Employee Failure (a) Plan Amendment Correction Method. The Operational Failure of including an otherwise eligible employee in the plan who either (i) has not completed the plan's minimum age or service requirements, or (ii) has completed the plan's minimum age or service requirements but became a participant in the plan on a date earlier than the applicable plan entry date, may be corrected by using the plan amendment correction method set forth in this paragraph. The plan is amended retroactively to change the eligibility or entry date provisions to provide for the inclusion of the ineligible employee to reflect the plan's actual operations. The amendment may change the eligibility or entry date provisions with respect to only those ineligible employees that were wrongly included, and only to those ineligible employees, provided (i) the amendment satisfies https://checkpoint.riag.com/static/23.05.0503.21/v2018/images/doc/link.gif § 401(a) at the time it is adopted, (ii) the amendment would have satisfied https://checkpoint.riag.com/static/23.05.0503.21/v2018/images/doc/link.gif § 401(a) had the amendment been adopted at the earlier time when it is effective, and (iii) the employees affected by the amendment are predominantly nonhighly compensated employees. For a defined benefit plan, a contribution may have to be made to the plan for a correction that is accomplished through a plan amendment if the plan is subject to the requirements of https://checkpoint.riag.com/static/23.05.0503.21/v2018/images/doc/link.gif § 436(c) at the time of the amendment, as described in https://checkpoint.riag.com/static/23.05.0503.21/v2018/images/doc/link.gif section 6.02(4)(e)(ii) Document Title:Rev. Proc. 2021-30, 2021-31 IRB 172 -- IRC Sec(s). 401; 403; 408, 07/16/2021 Checkpoint Source:Revenue Procedures (1955 - Present) (RIA) © 2023 Thomson Reuters/Tax & Accounting. All Rights Reserved. Nate S, Lou S., Jakyasar and 1 other 4
TPApril Posted May 14, 2023 Author Posted May 14, 2023 thanks all for your input. looks like there's a missed deferral opportunity going on too. ee was given safe harbor, but never given opportunity to defer. 401k and safe harbor eligibility are the same.
Bill Presson Posted May 14, 2023 Posted May 14, 2023 1 hour ago, TPApril said: thanks all for your input. looks like there's a missed deferral opportunity going on too. ee was given safe harbor, but never given opportunity to defer. 401k and safe harbor eligibility are the same. If he wasn't eligible, then he didn't have an MDO. Amend the plan just to allow the PS for him and nothing else. Nate S and Belgarath 2 William C. Presson, ERPA, QPA, QKA bill.presson@gmail.com C 205.994.4070
TPApril Posted May 15, 2023 Author Posted May 15, 2023 Sending it all to PS to a nonvested terminated ee/participant is then essentially a contribution to the forfeiture account, though I know it must go through ee account.
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