"Internal Revenue Code Section 45E provides a tax credit for a portion of a small employer's (up to 100 employees) qualifying expenses to establish or administer a new retirement plan.

I've read that, 'An employer cannot qualify for this credit if, during the three-taxable-year period that immediately precedes the first taxable year for which the credit otherwise could be allowed, the employer or any member of any controlled group that includes the employer (or any predecessor of either) established or maintained a qualified employer plan for which contributions were made, or benefits were accrued, for substantially the same employees as are in the qualified employer plan for which the credit otherwise could be allowed.'

How does this work with a multiple-employer plan -- whether an association retirement plan, some other 'closed' MEP, an 'open' MEP, or a pooled-employer plan? For this credit, does it matter that the plan is not a startup? Or is it enough that the employer's participation under the plan is the first time the employer provided any retirement plan for its employees?"

"Am hoping those with more DB plan experience may be able to help. Details are below but the basic questions are: [1] how easy is it to get waiver of excise taxes for a late 204(h) notice if you provide participants the additional benefits as if notice was timely sent and [2] if that's not easily done, can you rescind or revoke prior plan amendment (freeze) and just provide additional benefits due through present, amend/terminate with proper notice now, and avoid excise taxes where that ends up a cheaper fix than paying the excise taxes?

We have a new client with large cash balance plan. They adopted an amendment to do a hard freeze last year. The 204(h) notice was sent to participants 23 days before the freeze took effect. It appears the actuary thought the 204(h) rules only required 15 days' notice and was unaware large plans had to provide 45 days' notice. This is not a situation where any exception to the general 45 days' notice appears to apply. Employer relied on actuary for advice and guidance on the freeze but is not necessarily looking to recover against the actuary. Just trying to address and move on. This has come up because the company is about to be sold and the plan will be terminated in connection with the sale, etc.

If I read the 204(h) rules and regulations applicable on or after June 7, 2001 (and Sal's interpretation), it appears the freeze amendment can stand but significant excise taxes will be assessed at the rate of $100 per day per missed individual for each day of noncompliance. Where the notice was sent to all applicable individuals on the same day but was sent 22 days late, that would result in an excise tax of $2,200 x the number of individuals receiving the notice. Assuming round numbers of 250 people, that would add up to $550,000.

Perhaps an argument could be made to waive the excise tax if the Treasury Department determined that the employer did not know the failure existed and had exercised 'reasonable diligence' to meet the notice requirements? I've not researched but a complete miss on the basic timing rule would seem tough to argue reasonable diligence although the employer had no clue of the issue until now. At the very least, hopefully the annual $500,000 cap on 'unintentional failures' could apply? Welcome any thoughts or suggestions on arguments on a waiver or possible reduction of excise taxes and how that normally plays out. For example, does one have to submit a PLR requesting waiver due to reasonable cause and not willful neglect to get clear IRS response / waiver or is it possible to get relief for an 'unknown failure" (See ERISA Outline 3B.644--5.b.1) without having to actually submit a PLR reasonable cause request? Part of our issue here is needing to reach clear result and clear up for the buyer in the sale without leaving open issue and future audit risk.

In addition to the excise tax issues above, what if the employer is willing to concede the late notice was an 'egregious' failure such that the freeze cannot take effect until everybody has at least 45 days notice? For example, what if the employer gives everyone an extra month of benefits beyond the original freeze date to make up for the 22 days the notice was late? It seems like that is possible under the current rules as an alternative to any argument the attempted freeze is completely ineffective? And if the failure was truly 'egregious' it seems like that extra benefit accrual is arguably required? As I understand the rules, however, giving folks the extra month of benefits would not eliminate the excise taxes as those apply in addition to the potential for accrual of additional benefits? See ERISA Outline 3B.666. Seems that means you cannot simply 'buy your way out' of the excise taxes (at least without some waiver by the IRS) in these situations by making up benefits over the missed notice period?

In this case, the extra month of benefits would only be ~$50,000 but the excise taxes may be $500,000. Perhaps there is an argument the plan could stick with the original freeze date and avoid not having to give the extra month of benefits (i.e., they could argue the failure was not 'egregious' under these facts) but the excise taxes still apply. If they have to pay the excise taxes, the additional month of benefits is not that huge of a deal though. Which brings me to our other question--can the plan just revoke, rescind, or otherwise completely ignore the prior 204(h) notice and attempted plan amendment / freeze as ineffective, give everybody the additional benefits that would have accrued through the rest of 2020, and thus avoid paying any excise taxes? Is that possible or are they clearly stuck with the excise tax issue in all cases because of the attempted freeze? If they went ahead and honored the additional benefits accruing during the last part of 2020 as if no freeze had been implemented, that should be significantly cheaper than the excise taxes due given the number of plan participants. They could then go ahead and proceed with a termination of the plan quickly now before anybody accrues anything in 2021 and come out cheaper than paying the excise taxes. That doesn't seem exactly right but they would much prefer to give extra amounts to participants than in excise taxes."

"I have a 403(b) plan with a 1/31 year end. HCEs are excluded from the fixed matching contribution formula, but after performing the ACP test, it appears that HCEs could be allocated a small matching contribution and the tests would still pass. The Employer wants to amend the plan to allow such discretionary matching Employer contributions which would apply to HCEs for the Plan Year Ending 1/31/21, as well as a true up provision for the fixed matching contributions that are already in the document that would only apply to NHCEs. Does this seem okay if the Employer signs the amendment before April 15th?"

"Employee A quit the day before PY 2020 began. It was not until a week into PY 2020 that the company paid A for his unused vacation pay. The plan has a 401k safe harbor 3%-of-pay feature. Does A accrue 3% on his unused vacation pay paid in 2020?"

"Company B was acquired by Company A in an asset sale. During the acquisition, Company A created a new company, named it Company C (different and distinct EIN from company A) and this is the company now paying the former employees of Company B. Company B previously sponsored a plan and intends to terminate it. Company C would like to establish a new plan for its employees only and want to rely on 410(b)(6)(C) transition relief.

All the documents I have read on this issue talk about the current existence of a plan, and that plan having met coverage prior to the transaction, thus the ability to reply on the 410(b)(6(c) rules. But no plan existed for this new company. So I don't think that the client can rely on the 410(b)(6)(C) transition relief. Is my logic correct?"

"I just took over a client that hasn't made their required Profit Sharing contributions (it's used in conjunction to a Cash Balance Plan). It turns out the client hasn't made their Profit Sharing contributions since 2017, and there are receivables from prior to that. The client didn't take the deduction on any tax returns, if that matters. Has anyone had this experience and how have you handled the lost interest, because these contributions are clearly late?"

"I've found conflicting opinions. Some say yes, others say that you fail the 25% Key employee test. Seems to me the latter is correct based on a literal reading, but maybe I'm missing something, or perhaps the IRS has opined informally on this, etc."