Shalina Ann Schaefer. Of Counsel. Indianapolis. 317-236-2302
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KEY CONTACTS Sarah K. Funke
Partner Indianapolis 317-236-5883
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Ann M. O’Hara
Of Counsel Indianapolis 317-236-2356 ann.o’
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Shalina Ann Schaefer
Of Counsel Indianapolis 317-236-2302
[email protected]
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COMMON RETIREMENT PLAN FAILURES AND THEIR CORRECTIONS QUICK REFERENCE GUIDE FAILURE
PERMITTED CORRECTION
Used wrong definition of compensation to determine plan contributions
Included ineligible compensation: • Distribute any excess deferrals (adjusted for earnings). • Forfeit any employer contributions (adjusted for earnings) if participant received more than he or she would have received but for the failure. • Generally, place forfeitures in unallocated plan account to be used to reduce future employer contributions. Excluded eligible compensation: • Make a corrective employer contribution (adjusted for earnings) on behalf of the participant equal to the participant’s missed deferral. The missed deferral is generally 50% of the participant’s elected deferral amount. • Make a corrective employer contribution (adjusted for earnings) on behalf of the participant equal to any employer contribution (adjusted for earnings) that the participant would have received but for the failure.
Failed to satisfy universal availability requirement under a 403(b) plan
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• Failed to timely implement an employee’s elective deferrals
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Permitted elective deferrals in excess of 402(g) limit
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Excluded employees • from making age 50 catch-up contributions •
Provide each improperly excluded employee with the opportunity to participate in the plan. Make a corrective employer contribution (adjusted for earnings) on behalf of the excluded employee equal to 50% of the employee’s missed deferral during exclusion. The missed deferral for a year is the greater of (i) 3% of compensation or (ii) the maximum deferral percentage for which the plan sponsor provides a matching contribution rate that is at least as favorable as 100% of the elective deferral made by the employee. Make a corrective employer contribution (adjusted for earnings) on behalf of the excluded employee equal to the matching contribution the employee would have received had the employee made a deferral equal to the missed deferral. Make a corrective employer contribution (adjusted for earnings) on behalf of the participant equal to the participant’s missed deferral. The missed deferral is generally 50% of the participant’s elected deferral amount. A corrective contribution is not required for failures of three months or less. Make a corrective employer contribution (adjusted for earnings) on behalf of the participant equal to any matching contribution that the participant would have received but for the failure. Distribute excess elective deferrals (adjusted for earnings) by the tax-filing deadline for the year in which the deferrals were made (for example, by April 15, 2018 for deferrals made in 2017), and report the deferrals as taxable in the year of deferral and the earnings as taxable in the year distributed. If excess elective deferrals are distributed after the tax-filing deadline, then report the deferrals as taxable in the year of deferral and in the year distributed and the earnings as taxable in the year distributed. Make a corrective employer contribution (adjusted for earnings) on behalf of the participant equal to 50% of the employee’s missed deferral attributable to the catchup contributions. The missed deferral attributable to catch-up contributions is deemed to be one-half of the applicable catch-up contribution limit for the year. For example, if an eligible employee is precluded from making catch-up contributions in 2018, the missed deferral attributable to catch-up contributions is $3,000 (onehalf of $6,000, the 2018 catch-up contribution limit). Make a corrective employer contribution (adjusted for earnings) on behalf of the participant equal to any matching contribution that the participant would have received but for the failure.
These materials are intended for general information purposes only and do not constitute legal advice. The materials should not be used or relied upon as a substitute for a review of applicable statutes, regulations, rulings and court decisions. The reader should consult legal counsel to determine how laws apply to specific situations. These materials were prepared in January 2018, and, consequently, will not reflect changes in law subsequent to that date. Attorney Advertising Material | © 2018 Ice Miller LLP.
