In Q&A 24, the IRS representatives clarified that neither the 130-hour monthly equivalency rule nor the general 30 hours of service (HOS) per week rule for determining full-time employees apply in determining whether an employer is an applicable large employer for employer mandate purposes (see Practice Note, Employer Mandate under the ACA: Overview). The IRS representatives noted that, for purposes of counting employees for the large employer determination:

In Q&A 26, the IRS representatives address whether an employer may have initial and standard measurement periods of different lengths applicable to the same category of employees under the look-back measurement method (for example, a 6-month initial measurement and 12-month standard measurement period) (see Practice Note, Employer Mandate under the ACA: Determining Full-time Employees for Employer Payments). The IRS representatives indicated that the stability period must be the same length as the initial measurement period, though they noted that a special rule for new employees allows the measurement period to be one month shorter than the stability period.

Q&A 28 involves crediting HOS for on-call nurse-employees of a large-employer hospital. Under the example, the nurses earn substantially less for their on-call time relative to their normal hours, and:

According to the IRS representatives, there is no concept of partial hours and an employee generally must receive credit for HOS reflecting on-call time if the employee is either:

In general, the regulations apply a facts and circumstances test for this issue.

In Q&A 1, the IRS representative addressed the correction of a defaulted loan. Under the Employee Plans Compliance Resolution System (ECPRS), if a participant fails to make a loan repayment, an operational failure occurs if the employer does not default the loan and issue the Form 1099-R. Specifically, the representative was asked whether:

The IRS representative stated that the correction in Section 6.07(3) of Rev. Proc. 2013-12 is available only through VCP or Audit Cap.

In Q&A 2, the IRS representative addressed when the loan repayment period begins with respect to the five year maximum in IRC Section 72(p) since for many record keepers there is a lag between the date a participant receives the loan funds and when repayments commence. Specifically, it was asked whether the start of the five-year repayment period may be treated as the date the first payment is withheld from the borrower's pay.

The representative explained that the plan document should address the start date of the loan (see Standard Document, 401(k) Plan Loan Policy). However, the representative clarified that the start date cannot be after the loan is funded or after the loan proceeds are paid to the participant.

For more information, see Practice Notes, Correcting Qualified Plan Errors under EPCRS and Common Qualification Errors and Corrections under EPCRS, and Qualified Retirement Plan Loans Toolkit.

Q&A 3 addressed whether a company that acquires another company and its 401(k) plan through a stock acquisition must correct 401(k) plan operational failures for years prior to the acquisition where the acquiring company lacks the information to correct the failure.

The IRS representative stated that companies must correct these operational failures even in instances where they lack the information to do so. The representative suggested that an acquiring company:

For more information, see Practice Notes, Correcting Qualified Plan Errors under EPCRS and Common Qualification Errors and Corrections under EPCRS.

In Q&A 5, the IRS representative was asked whether a partner who opts out of the profit sharing feature of a 401(k) plan, may through a one-time, irrevocable election participate in a defined benefit plan that is mandatory for all partners.

The IRS representative stated that once a person has opted out through a one-time, irrevocable election, that person may not participate in a new defined benefit plan because the election applies not only to current and existing plans but to all future plans as well, regardless of whether or not they are mandatory since Treasury Regulation Section 1.401(k)-1(a)(3)(v) provides that a one-time irrevocable election must be applied to all plans of the employer, including plans that do not exist at the time of the election.

In Q&A 8, the IRS representative was asked if the last day requirement can be imposed on a discretionary matching contribution provided the discretionary matching contribution is subject to average contribution percentage (ACP) testing without violating the plan's status as a safe harbor plan with respect to average deferral percentage (ADP) testing, solely with respect to the safe harbor basic matching contributions.

The IRS indicated that the last day of the year requirement cannot be imposed without violating the safe harbor since the last day requirement could make it possible to have different matching contribution rates for some highly compensated employees and other non-highly compensated employees.

For more information, see Practice Note, Safe Harbor 401(k) Plans: Overview and Planning Opportunities.

In Q&A 19, the IRS was asked to evaluate whether an ESOP with an erroneous provision limiting the terms of the underlying loan to 10 years could be prospectively amended to increase the term of the loan to 20 years. This inconsistency was not discovered until the loan had been amortized for 5 years. In order to receive an allocation under the ESOP, a participant must be credited with 500 hours of service and be employed on the last day of the plan year.

The IRS stated that the ESOP plan sponsor should file a submission with the IRS under the VCP to discuss a correction method for this operational failure (see Practice Note, Correcting Qualified Plan Errors under EPCRS: Voluntary Correction with Service Approval Program: VCP). The proposed correction was for the plan sponsor to make a corrective additional payment to the ESOP so that the shares that would have been allocated had the loan been for a 10-year term rather than a 20-year term are allocated to participants who satisfied the requirements for the first 5 years. While the IRS representative agreed that this amendment would not create an IRC Section 411(d)(6) problem unless the amendment was applied to modify the conditions for a participant's receipt of an allocation after the participant has satisfied those conditions (see Practice Note, Protected Benefits under IRC Section 411(d)(6)), it noted that the proposed correction may conflict with the requirements of Title I of ERISA.

As long as amounts are appropriately included in the participants' gross incomes, Treasury Regulation Section 1.409A-3(j)(4)(ix) allows deferred compensation plans to provide for accelerations of payments in connection with the termination and liquidation of the plan either:

In Q&A 16, the IRS was asked whether the 12-month period following a corporate dissolution is measured from the date a certificate of dissolution is filed with the state (that is, when the dissolution process begins) or when a complete liquidation of the corporation in exchange for shares of stock has occurred (which can be much later). The IRS representative clarified that the 12-month period begins on the date that the certificate of dissolution is filed with the state. The Section 331 language should be interpreted as meaning a dissolution subject to tax under Section 331.

For more information on the requirements that must be satisfied to accelerate payments as part of a termination and liquidation of a nonqualified deferred compensation plan in various circumstances, see Terminating a Nonqualified Deferred Compensation Plan under Section 409A Checklist.

In Q&A 17, IRS representatives were asked whether a non-elective account balance plan that provides for payments to be made in installments over five years for participants who enter the plan over the age of 50 and in installments over 10 years for participants who enter the plan under the age of 50 violates Section 409A's one time and form of payment rule. The officials stated that these provisions would not violate the time and form of payment rule because a plan is a separate plan as to each participant. Therefore, the plan will have one term for those entering the plan before age 50 and another term for those entering the plan after age 50.

For more information on designating the time and form of payment of deferred amounts under Section 409A, see Practice Note, Section 409A: Deferred Compensation Tax Rules: Overview: Designation of Time and Form of Payment of Deferred Amount.

In Q&A 18, the IRS was asked how the following RSU awards should be treated for purposes of Section 409A’s plan aggregation rules:

The IRS representative stated that:

For more information on Section 409A issues that frequently arise when granting and administering RSUs, see Equity Pitfalls under Section 409A Checklist: Issues with Restricted Stock Units.