4.72.3 Employee Contributions and Matching Contributions

Manual Transmittal

September 28, 2017

Purpose

(1) This transmits revised IRM 4.72.3, Employee Plans Technical Guidelines, Employee Contributions and Matching Contributions.

Material Changes

(1) This IRM is updated to add Sections 4.72.3.1 (Program Scope and Objectives), 4.72.3.1.1 (Background), 4.72.3.1.2 (Authority), 4.72.3.1.3 (Responsibilities), and 4.72.3.1.4 (Acronyms and Definitions).

(2) This IRM is updated to add Section 4.72.3.2(9)(j) to reflect the Notice of Proposed Rule making published in the Federal Register on January 18, 2017, that proposes to change the definitions of a Qualified Matching Contributions and a Qualified Nonelective Contributions.

(3) This IRM is updated to make editorial changes, change section numbers, and to reflect current versions of annual revenue procedures and IRM procedures.

Effect on Other Documents

This supersedes IRM 4.72.3, Employee Plans Technical Guidelines, Employee Contributions and Matching Contributions, dated September 22, 2016.

Audience

Tax Exempt and Government Entities
Employee Plans

Effective Date

(09-28-2017)

Robert S. Choi
Director, Employee Plans
Tax Exempt and Government Entities

Program Scope and Objectives

  1. Purposes: This IRM section helps Employee Plans (EP) specialists identify issues related to retirement plans that offer employee contributions or matching contributions (a “401(m) plan”).

  2. Audience: Tax Exempt and Government Entities, Employee Plans employees.

  3. Policy Owner: Director, Tax Exempt and Government Entities, Employee Plans.

  4. Program Owner: Tax Exempt and Government Entities, Employee Plans.

  5. Program Goal: To ensure continued compliance and qualification of retirement plans with cash or deferred arrangements.

Background

  1. A plan is qualified if it meets the requirements of IRC 401(a) in form and operation. A qualified plan is entitled to favorable tax treatment.

  2. The primary objective of an Employee Plans examination is to determine if the plan is operating in compliance with the Internal Revenue Code and if the terms of the written plan document are being followed.

  3. The technical guidelines in this IRM section summarize the law that agents must consider in determining whether a plan meets the requirements of the Internal Revenue Code for retirement plans that offer employee contributions or matching contributions.

Authority

  1. A plan is qualified if it meets the requirements of IRC 401(a) in form and operation.

  2. A plan that permits employee contributions or matching contributions must satisfy the requirements of both IRC 401(m) and IRC 401(a).

  3. Policy Statement 4-119 states that the primary objective of the Employee Plans examination program is regulatory, emphasizing continued qualification of employee benefit plans. IRS examines plans to determine whether they meet the applicable qualification requirements in form and operation. IRM 1.2.13.1.36.

  4. Delegation Order 8-3 gives the Director, Employee Plans, authority to enter into and approve a written agreement with any person relating to their tax liability. IRM 1.2.47.4.

Responsibilities

  1. Agents examine a plan to determine if the plan:

    • Meets the qualification requirements of IRC sections 401(a) and IRC 501(a). See IRM 4.71.1.3 and 4.71.1.4.

    • Filed all required tax and information returns. See IRM 4.71.1.14.

    • Reported information and excise tax liabilities correctly. See IRM 4.71.1.4.

  2. In June 2014, the IRS adopted the Taxpayer Bill of Rights (TBOR). Agents must consider these rights when doing EP exams. See Policy Statement 1-236 and the Taxpayer Bill of Rights (TBOR).

Acronyms and Definitions

  1. This subsection defines some terms and their abbreviations that we use in this IRM:

    Term Acronym or other Definition
    Elective contributions ECs, salary deferrals Contributions made to a plan per an employee’s CODA election. ECs can be treated as matching contributions and used in the ACP test if the ADP test is first satisfied using all ECs and continues to be satisfied after excluding those ECs used in the ACP test.
    Employee contributions sometimes referred to as "after-tax" employee contributions Plan contributions from employees allocated to a separate account. that are:
    • mandatory (they’re required to receive some benefit from the employer, such as matching contributions) or voluntary.

    • treated at the time of contribution as after-tax employee contributions.

    • Not designated Roth contributions, loan repayments, repayments for the buy-back of cashed-out benefits (see IRC 411(a)(7)(C)), or amounts transferred or rolled over from another plan or IRA.

    Matching contributions match
    • Employer contributions made to a defined contribution plan on account of an employee’s employee contributions or elective contributions.

    • Forfeitures allocated based on matching contributions, employee contributions or elective contributions.

    Actual deferral ratio ADR An employee’s ECs (and amounts treated as ECs) for a plan year divided by his compensation for the plan year.
    Actual deferral percentage ADP
    • The average of the ADRs for the relevant group of employees.

    • Used in discussions about the ADP test, a non-discrimination test contained in IRC 401(k)(3)(A)(ii).

    Actual contribution ratio ACR The sum of an employee’s employee contributions and matching contributions (and amounts treated as matching contributions) for a plan year divided by his compensation for the plan year.
    Actual contribution percentage ACP
    • The average of the ACRs for the relevant group of employees.

    • Used in discussions about the ACP test, a non-discrimination test contained in IRC 401(m)(2)(A).

    Qualified nonelective contributions QNECs or QNCs
    • Special employer contributions, other than elective contributions or matching contributions.

    • Always fully vested and subject to certain distribution restrictions.

    • May be treated as EDs or matching contributions in the ADP test or ACP test, respectively.

    Qualified matching contributions QMACs Employer matching contributions that are always:
    • Fully vested and subject to certain distribution restrictions.

    • Counted in the ACP test unless they are treated as EDs, in which case they are counted in the ADP test.

    Automatic contribution arrangement ACA, automatic enrollment, auto enroll
    • A feature in a retirement plan that allows an employer to "enroll" a covered employee in the employer’s plan unless the employee affirmatively elects otherwise.

    • "Enroll" means that part of the employee’s wages is contributed to the retirement plan on the employee’s behalf as ECs.

    Qualified automatic contribution arrangement QACA
    • A type of safe harbor 401(k) plans that includes an ACA and satisfies other requirements in IRC 401(k)(13).

    • A QACA has certain minimum contribution requirements and isn’t subject to the ADP test, nor to the ACP test if additional requirements in IRC 401(m)(12) are satisfied.

    Eligible automatic contribution arrangement EACA A type of ACA described in IRC 414(w). An EACA may permit covered employees who meet certain requirements to withdraw amounts contributed under a default election.
    Safe harbor 401(k) plan   A plan that isn’t subject to either the:
    • ADP test because it meets the requirements of IRC 401(k)(12) or 401(k)(13)

    • ACP test if it meets the safe harbor requirements of IRC 401(m)(11)or 401(m)(12).

Recent Changes to 401(m) plans

  1. This IRM section reflects statutory changes made by the:

    1. Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), Pub. L. 107-16

    2. Pension Protection Act of 2006 (PPA), Pub. L. 109-280

    3. Worker, Retiree, and Employer Recovery Act of 2008 (WRERA), Pub. L 110-458

    4. Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART), Pub. L 110-245.

  2. The statutes listed above made these changes to IRC 401(m).

    Year
    Effective
    Law
    Section
    IRC
    Section
    Changes
    2002 EGTRRA 631 414(v) Adds catch-up contributions for individuals age 50 or over.
    2002 EGTRRA 666 401(m)(9) Eliminates multiple use test.
    2002 EGTRRA 633 411(a)(2) Requires faster vesting for matching contributions: either three year cliff or six year graded.
    2002 EGTRRA 613(b) 416(c)(2)(A) States matching contributions are taken into account to satisfy the top heavy minimum contribution requirement.
    2002 EGTRRA 613(d) 416(g)(4)(H) Exempts certain safe harbor IRC 401(k) plans (401(k) plans) from the top heavy rules.
    2006 EGRRRA 617 402A Permits optional treatment of elective deferrals as Roth contributions
    2006 PPA 861(a)(1) 401(a)(5)(G) All governmental plans per IRC 414(d) are treated as meeting the participation and nondiscrimination requirements of IRC 401(a)(3) and (4). Before this change, only state and local government plans were so treated. Since governmental plans (within the meaning of IRC 414(d)) which have employee or matching contributions automatically satisfy IRC 401(a)(4), there is no need for them to satisfy IRC 401(m).
    2007 PPA 904 IRC 411(a) Requires faster vesting of employer nonelective contributions in defined contribution plans. Three year cliff and two to six year graded vesting replaces five year cliff and three to seven year graded vesting.
    2008 PPA 902(a) and (b) 401(k)(13) and 401(m)(12) Permits qualified automatic contribution arrangements (QACAs) as another way to satisfying the ADP and ACP tests.
    2008 PPA 902(d) 414(w) and 401(k)(8)(E)
    411(a)(3)(G)
    Allows eligible automatic contribution arrangements (EACAs).
    Allows plans to forfeit matching contributions associated with permissible withdrawals under IRC 414(w).
    2008 PPA 902(e)(3)(B) 401(k)(8)(A)(i) and IRC 401(m)(6)(A)
    IRC 4979(f)(1)
    Eliminates the "gap-period earnings" rule for excess and excess aggregate contributions. Gap-period earnings are earnings from the end of the year in which the excess arose to the date of distribution.
    2008 PPA 902(e)(2) IRC 4979(f)(2) States that a distribution of excess contributions or excess aggregate contributions, plus attributable earnings on each, is includible in the recipient’s gross income in the year distributed.
    2010 PPA 903(a) IRC 414(x) Allows "eligible combined plans" (a "DB-K plan" ) - a plan that has a defined benefit plan that meets certain specified benefit and vesting requirements and a CODA that meets certain specified contribution, vesting, nondiscrimination and notice requirements.
  3. The IRS issued this guidance on 401(m) plans:

    Legal Guidance IRC Section Guidance addressed:
    Rev. Rul. 2004-13, 2004-1 C.B. 485 IRC 416(g)(4)(H) Whether certain safe harbor 401(k) plans are subject to the top heavy rules.
    Treasury regulations published on December 29, 2004, 69 CFR 78144 401(k)
    401(m)
    Sets comprehensive requirements (including the nondiscrimination requirements) for 401(k) and 401(m) plans.
    Treasury regulations published on January 3, 2006, 71 CFR 6 401(k)
    401(m)
    Explains Designated Roth contributions for plan qualification purposes.
    Treasury regulations published on July 21, 2006, 71 CFR 41357 410(b) Permits plans to exclude certain employees of a 501(c)(3) tax-exempt to determine whether a 401(k) plan (or a 401(m) plan) meets minimum coverage requirements in IRC 410(b).
    Treasury regulations published on February 24, 2009, 74 FR 8200 401(k)(13) QACAs and EACAs
    Treasury regulations published on November 15, 2013, 78 FR 68735 401(k) and IRC 401(m) Expands the reasons for suspending safe harbor contributions in a safe harbor IRC 401(k) (IRC 401(k)(12)) or a QACA (IRC 401(k)(13)).
    Notice 2014-19, 2014-17 IRB 979   Applying the decision in United States v. Windsor, 570 U.S. 12 (2013), and Rev. Rul. 2013-17, 2013-38 IRB 201 holdings to retirement plans.
    Notice 2014-37, 2014-24 IRB 1100   Amending a safe harbor 401(k) plan or safe harbor 401(m) plan mid-year to reflect the outcome of United States v. Windsor, per Notice 2014-19.
    Notice 2016-16, 2016-7 IRB 318 401(k) Mid-year changes to safe harbor 401(k) plans. A mid-year change either to a safe harbor plan or to a plan’s safe harbor notice that is not otherwise listed as a prohibited change doesn’t violate the safe harbor rules merely because it is a mid-year change, if applicable notice and election opportunity conditions are satisfied.
    Notice of Proposed Rule making REG-131643-15   Proposed regulations regarding the definitions of QMACs and QNECs, was published in the Federal Register on January 18, 2017 (82 CFR 5477; 2017-6 IRB 865).

Summary of 401(m) Plan Requirements

  1. If a plan permits employee contributions or matching contributions, it must satisfy the requirements of both IRC 401(m) and IRC 401(a).

    1. This IRM refers to this type of plan as a "401(m) plan," whether any other types of contributions are provided in the plan

    2. In the Treasury regulations, a "401(m) plan" means only the portion of a plan that consists of employee contributions and employer matching contributions.

  2. The only requirement imposed by IRC 401(m) is the ACP test, which, if passed, satisfies the nondiscrimination requirement of IRC 401(a)(4) for the amount of employee contributions and employer matching contributions.

  3. In addition to the ACP test, a 401(m) plan must satisfy the requirements of IRC 401(a)(4) relating to benefits, rights and features.

    Example:

    A participant’s right to make each level of employee contributions and the right to each level of matching contributions under the plan are benefits, rights or features subject to the requirements of IRC 401(a)(4). See 26 CFR 1.401(a)(4)-4(e)(3)(i) and (iii)(F) through (G).

  4. The portion of a plan consisting of employee and matching contributions must separately satisfy the IRC 410(b) coverage requirements (26 CFR 1.410(b)-7(c)).

  5. Employee contributions and attributable earnings must be non-forfeitable at all times. However, matching contributions (other than QMACs) may be subject to a vesting schedule. But the plan may forfeit vested matching contributions, including QMACs, if the contributions to which they relate are any of the following:

    1. Excess deferrals (deferrals in excess of the IRC 402(g) limit)

    2. Excess contributions (deferrals over the ADP test limit)

    3. Excess aggregate contributions (amounts in excess of the ACP test limit)

    4. A permissible withdrawal under IRC 414(w)

      Note:

      See IRC 401(k)(8)(E), IRC 411(a)(3)(G) and 26 CFR 1.414(w)-1(c).

Coverage and Participation

  1. The portion of the plan consisting of employee contributions and employer matching contributions, by itself, must satisfy one of the IRC 410(b) coverage tests:

    • ratio percentage test

    • average benefits test

  2. To satisfy the ratio percentage test, the 401(m) portion may, under 26 CFR 1.410(b), be aggregated with a similar portion in the same or another plan if it:

    1. Has the same plan year

    2. Uses the same testing method (prior year or current year)

    3. May be permissively aggregated.

  3. "Eligible employees" are treated as "benefiting" (in other words, are covered) in the plan even if they don’t choose to make employee contributions or have deferrals made on their behalf (and, potentially, receive matching contributions on these amounts). See IRM 4.72.3.5.1, ACP Test.

  4. 401(k) and 401(m) plans may be retroactively amended to extend eligibility to employees to satisfy coverage within 10 1/1 months after the plan year in which there is a coverage problem. See 26 CFR 1.410(b)-3(a)(2)(i), 26 CFR 1.401(a)(4)-11(g)(3) and 26 CFR 1.401(a)(4)-11(g)(3)(vii). If a plan needs to add some nonhighly compensated employees (NHCEs) to satisfy IRC 410(b), the employer must make a QNEC contribution to each of the added employees equal to the average of the eligible NHCEs’ ACRs.

  5. For the ACP Test:

    1. Employees covered by a collective bargaining agreement must be disaggregated from employees not covered by a collective bargaining agreement

    2. Separate collective bargaining units within the same plan may be disaggregated, but are not required to be.

    3. Combining bargaining units used for testing must be reasonable and reasonably consistent from year to year.

    4. Equivalent rules apply to multiemployer plans.

  6. The mandatory disaggregation of ESOP and non-ESOP parts of a plan in 26 CFR 1.410(b)-7(c)(2) doesn’t apply to 401(m) plans. So, despite the rule prohibiting an employer from permissively aggregating plans or parts of plans that are mandatorily disaggregated (26 CFR 1.410(b)-7(d)(2)), an employer may aggregate plans with an ESOP feature with those that don’t have an ESOP feature applying the IRC 401(m) rules, even if the ESOP and non-ESOP are in different plans of the employer.

Examination Tip

  1. Verify the portion of the plan that is subject to IRC 401(m) satisfies the coverage requirements of IRC 410(b).

Nondiscrimination

  1. A 401(m) plan must satisfy the ACP test annually (IRC 401(m)(2)). The test compares the eligible HCEs’ employee and matching contributions to those made by eligible NHCEs. If the HCEs exceed certain limits, the employer must correct to bring the plan within the limits. This testing for nondiscrimination (the ACP test) is the exclusive nondiscrimination test for amounts of employee and matching contributions contributed to a plan. That is, this test is used instead of any IRC 401(a)(4) amounts testing. Count QNECs and elective contributions that are treated as matching contributions in the ACP test.

  2. Employee and matching contributions in the below plans don’t have to satisfy 401(m) because:

    1. A collectively bargained plan that automatically satisfies IRC 410(b) is treated as satisfying IRC 401(m).

    2. A governmental plan, within meaning of IRC 414(d), is exempt from the requirements of IRC 401(m).

      Note:

      See IRC 401(a)(5)(G), 26 CFR 1.401(m)- 1(b)(2), 26 CFR 1.401(a)(4)-1(c)(5) and 26 CFR 1.410(b)-2(b)(7).

  3. Instead of the ACP test, a plan may use any of the following:

    1. SIMPLE 401(k) plans, modeled after SIMPLE IRA plans in IRC 408(p). See IRC 401(k)(11) and IRC 401(m)(10).

    2. Safe harbor 401(k) plans in IRC 401(k)(12) and IRC 401(m)(11).

    3. QACAs in IRC 401(k)(13) and IRC 401(m)(12).

  4. Although a 401(m) plan must satisfy the ACP test (or be deemed to satisfy the ACP test because it’s a SIMPLE 401(k) plan, a safe harbor 401(k) plan, or a QACA with respect to the amount of employee and matching contributions), the plan must satisfy the nondiscriminatory availability requirement of 26 CFR 1.401(a)(4)-4(e)(3) because the right to make each level of employee contributions and the right to each level of matching contributions is a benefit, right or feature.

  5. A plan that fails the ACP test doesn’t meet the IRC 401(a) qualified plan requirements.

ACP Test

  1. Under the IRC 401(m)(2)(A), the ACP of the eligible HCEs cannot exceed the greater of:

    1. 1.25 times the ACP of the eligible NHCEs

    2. The lesser of: i) 2 + the eligible NHCEs’ ACP or ii) 2 x the eligible NHCEs’ ACP

  2. The ACP for a group (either HCE or NHCE) is the average of the individual ACRs of that group.

    1. An eligible employee’s ACR is the sum of the employee and matching contributions and QNECs and elective contributions that are treated as matching contributions allocated to the employee’s account in the plan divided by the employee’s compensation.

    2. Round ACRs and ACPs, expressed as a percentage, to the nearest one-hundredth of a percent.

    3. If the only eligible employees in the plan are HCEs, the plan automatically passes the ACP test.

  3. Include only "eligible employees" in the ACP test. ("Eligible employees" are also counted as “benefiting” for purposes of satisfying the IRC 410(b) coverage requirements. See IRM 4.72.3.4 (3)).

  4. An "eligible employee" is an employee who:

    1. Is eligible under the plan to make an employee contribution or to receive an allocation of matching contributions, whether or not the employee actually makes any employee contributions or receives any matching contributions.

    2. Doesn’t contribute but would be a participant in the plan if they made a contribution as an eligible employee for plans requiring an employee to contribute as a condition of plan participation (i.e., a mandatory contribution). See IRC 401(m)(5)(B)

    3. Must perform purely ministerial or mechanical acts in order to make an employee contribution or receive an allocation of matching contributions.

    4. Has been suspended from making employee contributions under the plan (e.g., for having taken a hardship distribution).

    5. May not make additional employee contributions or receive additional employer contributions because of the IRC 415(c) limits.

  5. If an eligible employee chooses not to make employee contributions, and no matching contributions (or elective contributions or QNECs treated as matching contributions) are allocated to the employee’s accounts, the employee must be included in the ACP test with an ACR of zero.

  6. An "eligible employee" is not:

    1. An employee who can’t make employee contributions or receive matching contributions because he was given a one-time election at his employment or when first becoming eligible under any of the employer’s 401(m) plans and elected not to be eligible to make employee contributions or receive an allocation of matching contributions while employed by the employer.

  7. First, identify the plan, because the ACP test is performed on a plan level. See IRM 4.72.3.4, Coverage and Participation.

  8. If a plan is disaggregated into separate plans for purposes of IRC 410(b), the portion consisting of employee and matching contributions must also be disaggregated.

    Example:

    If a plan covers all employees, but, for testing purposes the plan is disaggregated into two plans: one covering employees who have less than one year of service or are less than age 21, and one covering all other employees, the employer would run two ACP tests, one for the employees with less than one year of service or less than age 21, and the other for all other employees.

  9. An employer may exclude from the ACP test all eligible employees (other than HCEs) who have not met the minimum age and service requirements of IRC 410(a)(1)(A) under a special rule in IRC 401(m)(5)(C). A similar rule applies for purposes of the ADP test.

  10. If a HCE is eligible to participate in more than one of an employer’s plans to which employee or matching contributions may be made, combine the HCE’s contributions for all plans to determine her ACR. Then, use this combined ACR in the ACP test for each plan. If the plan is a safe harbor plan, see IRM 4.72.2.12.2, Special Compensation Definition for Safe Harbor Plans, for the definition of compensation the plan must use.

  11. Participant compensation used to calculate ACRs:

    1. Is limited to the IRC 401(a)(17) amount.

    2. Must also satisfy IRC 414(s).

    3. By definition, must be nondiscriminatory, and may include or exclude elective deferrals.

  12. Contributions for HCEs that exceed the ADP test are excess contributions. A plan must dispose excess contributions by distributing them in either of these ways:

    1. Distribute them to certain HCEs.

    2. Recharacterize them as employee after-tax contributions and count them in the ACP test.

  13. Contributions for HCEs that exceed the ACP limits are excess aggregate contributions. A plan must dispose excess aggregate contributions by distributing them in either of these ways:

    1. Distribute them to certain HCEs

    2. Forfeit certain matching contributions.

      Note:

      The plan sponsor can make QNECs and certain elective contributions to NHCEs to raise the NHCE ACP. Doing so reduces or eliminates HCE contributions that might otherwise become excess aggregate contributions.

Current Year Testing
  1. For the current year testing method:

    1. Use the same plan year as the plan year for which the ACP test is being performed to determine the eligible NHCEs’ ACP.

    2. Consider employee contributions for a plan year for the plan year they’re made to the trust. A payment to a plan agent (for example, the employer) is considered to be made to the trust if the agent remits such funds to the trust within a reasonable time after receipt.

    Note:

    Department of Labor regulations require employee contributions to be paid into the trust by the earliest date those contributions can reasonably be segregated from the employer’s general assets, with a safe harbor for small plans. See DOL Regs. 2510.3-102.

  2. Use these contributions in the plan year ACP test:

    Contribution type Use for the plan year ACP test only if:
    Excess contributions that are recharacterized as employee contributions The HCE includes the excess contribution in gross income.
    Matching contributions
    1. Allocated to the employee’s account as of a date within the plan year per the terms of the plan.

    2. Paid to the trust no later than 12 months after the close of the plan year.

    3. Made on account of the employee’s elective contributions or employee contributions for the plan year.

    QNECs
    1. The contributions are allocated to the employee’s account as of the date within that year per 26 CFR 1.401(k)-2(a)(4)(i)(A).See 26 CFR 1.401(k)-2(a)(4)(i)(A) for the meaning of "as of the date within that year."

    2. The elective contribution satisfies 26 CFR 1.401(k)-2(a)(4)(i) and the ADP test in 26 CFR 1.401(k)-2(a)(1).

    3. The amount of QNEC satisfies the requirements of IRC 401(a)(4).

    Elective contributions The plan passes the ADP test both with and without the elective contributions (IRC 401(m)(3)).
    QNECs exceeding five percent of the employee’s compensation, or
    QMACs exceeding the greater of:
    • five percent of compensation

    • the employee’s elective contribution

    It’s not more than two times a representative rate per the Treasury regulations. See 26 CFR 1.401(k)-2(a)(6)(iv) and (v) and 26 CFR 1.401(m)-2(a)(5)(ii) published December 29, 2004.
  3. Don’t use these contributions in the plan year ACP test:

    Contribution type
    Matching contributions that don’t meet the requirements in the table in IRM 4.72.3.5.1.2. 1
    Matching contributions forfeited due to its related contribution being:
    • An excess deferral

    • An excess contributions

    • An excess aggregate contribution

    QMACs already used in the ADP test
    QNECs and QMACs, if they’re large when compared to the recipient’s compensation. 2
    1 These contributions must satisfy the requirements of IRC 401(a)(4) (without considering the ACP test) for the plan year they’re allocated as if they were nonelective contributions and were the only nonelective contributions allocated for that year. See 26 CFR 1.401(m)-2(a)(5)(i), 26 CFR 1.401(a)(4)-1(b)(2)(ii)(B) and 26 CFR 1.410(b)-7(c)(1).
    2 This is to prevent abuses of targeted QNECs and QMACs, also called "bottom-up leveling" It’s when the plan sponsor targets one or more NHCEs with the lowest compensation and gives them a large QNEC or QMAC to raise the NHCE ADP/ACP so that the HCEs can contribute more.

    Example:

    ABC 401(k) Plan failed the ADP/ACP tests. The plan sponsor contributes a $1,000 QNEC to a NHCE who made just $1,000. This raises the ADP of all 50 NHCEs by two percent, enabling HCEs to contribute an additional $78,000 (or more). The ABC 401(k) Plan can’t correct their failed ADP/ACP tests this way and must correct it using an acceptable correction method.

  4. QNECs and QMACs made after the tax return filing date aren’t deductible for the prior taxable year. Count these contributions, with other employer contributions, against the IRC 404 deduction limits for the year made.

Prior Year Testing
  1. Under the prior year testing method, the applicable year for determining the ACP for the eligible NHCEs is the plan year immediately before the plan year for which the ACP test is being calculated.

  2. Generally, the rules to calculate the ACR and the ACP in current year testing also apply to prior year testing. Prior year testing simplifies plan administration because an employer can determine the HCEs’ percentage of employee and matching contributions early in the plan year and have more time to correct failed ADP/ACP tests. Consider the following:

    Example:

    Employer X’s calendar-year 401(m) plan’s only method to correct ACP failures is to distribute excess aggregate contributions. The plan uses the current year testing method. In January 2017, Employer X determines that the plan fails the ACP test for 2016, and that it must make a corrective distribution of excess aggregate contributions to appropriate HCEs by March 15, 2017, to avoid all penalties.

    Example:

    Same facts as above, except that the plan uses the prior year testing method. Employer X can determine the ACP for the NHCEs for 2015 early in 2016 because it has all the necessary data on prior year NHCE status, contributions and compensation by January 2016. This simplifies plan administration for Employer X, allowing them to correct failed ACP tests in 2016.

  3. Consider the eligible employees who were NHCEs during the preceding year, without considering their status in the testing year to determine the prior year eligible NHCEs’ ACP.

    Example:

    NHCE A was employed by Employer X in Year One. Employee A no longer works for Employer X in Year Two. To determine the prior year’s ACP for Employer X’s 401(m) plan for the Year Two testing year, Employee A is taken into account. Employee A would also a NHCE if still employed by Employer X but had become a HCE in Year Two. You’d count Employee A twice in Year Two: as a NHCE in the prior year and a HCE in this year.

  4. A special rule applies for the NHCEs prior year ACP for the first plan year. See IRM 4.72.3.5.1.2.2.

Use of QNECs and QMACs in Prior Year Testing
  1. Plans that take into account QNECs or QMACs for the prior year NHCE ACP must:

    1. Allocate them to the employee’s account as of a date within that year. See 26 CFR 1.401(k)-2(a)(4)(i)(A) for the meaning of "as of a date within that year."

    2. Pay them to the trust by the end of the 12- month period following the end of that prior year. This means the QNEC or QMAC must be paid to the trust by the end of the testing year.

      Note:

      So, employers using prior year testing can’t use QNECs or QMACs to correct a failed ACP or ADP test. This is because the employer doesn’t know until after the testing year whether or the plan passes the ACP/ADP and QNECs/QMACs must be made by the end of the testing year.

    Example:

    A plan uses the prior year testing method for the 2017 testing year. The plan can count QMACs allocated to NHCEs’ accounts as of the last day of the 2016 plan year to calculate the ACP only if the plan sponsor actually pays those QMACs to the plan by the last day of the 2017 plan year.

    Note:

    This 12-month rule doesn’t change the rule under IRC 415, that employer contributions aren’t deemed credited to a participant’s account for a particular limitation year unless actually made by 30 days after the end of the IRC 404(a)(6) period applicable to the taxable year with or within which the particular limitation year ends. See 26 CFR 1.415(c)-1(b)(6)(i)(B).

First-Year Rule for Prior Year Testing
  1. Under IRC 401(m)(3) and 26 CFR 1.401(m)-2(c)(2), a plan (other than a "successor plan," see below) that uses prior year testing, for the first plan year, the NHCEs’ ACP for the prior year is deemed to be either:

    1. Three percent

    2. The NHCE ACP for that first year (the current year), if specified in the plan.

  2. For ACP testing purposes, the "first plan year" is the first year in which the plan offers employee or matching contributions. A plan doesn’t have a first plan year if for that year it is aggregated per the Treasury regulations with any other plan that provided employee or matching contributions in the prior year.

  3. A plan is a "successor plan" if 50 percent or more of the eligible employees for the first plan year were eligible employees under another 401(m) plan maintained by the employer in the prior year.

Changes in the Group of NHCEs in Prior Year Testing
  1. Under prior year testing method, disregard subsequent changes in the group of NHCEs. Determine the ACP for NHCEs for the prior year for eligible employees who were NHCEs in that prior year, and without regard to changes in the group of eligible NHCEs in the testing year. Don’t consider changes in the group of NHCEs in the testing year, such as:

    1. Prior year’s NHCEs who become HCEs in the testing year.

    2. Prior year’s NHCEs who are no longer eligible employees under the plan in the testing year.

    3. NHCEs who were not eligible in the prior year but are in the testing year.

  2. Plans resulting from or affected by a "plan coverage change" effective during the testing year use the weighted average of the NHCEs’ ACP for the prior year subgroups. A “plan coverage change” is a change in the group(s) of eligible employees because of any of the following:

    1. Establishment or amendment of a plan.

    2. Plan merger, consolidation, or spin off under IRC 414(I).

    3. Change in the way plans are (or are not) permissively aggregated under 26 CFR 1.410(b)-7(d).

    4. Reclassification of employees that has the same effect as amending the plan.

    5. Any combination of the above.

  3. A "prior year subgroup" is all NHCEs for the prior year who both:

    1. Were eligible employees under a specific 401(m) plan maintained by the employer.

    2. Would’ve been eligible employees under the plan being tested if the plan coverage change had been effective as of the first day of the prior year.

  4. The "weighted average of the ACPs for the prior year subgroups" is the sum for all prior year subgroups of the "adjusted ACPs."

  5. The adjusted ACP for each prior year subgroup is:

    The prior year NHCEs ACP for the specific plan whose prior year subgroup members were eligible employees X NHCEs in prior year subgroup/Total NHCEs in all prior year subgroups.

  6. Optional rule for minor plan coverage change: The employer may elect to use the prior year ACP for NHCEs of the plan that included that single prior year subgroup if there is a plan coverage change, and 90 percent or more of all NHCEs from all prior year subgroups are from a single prior year subgroup. See 26 CFR 1.401(m)-2(c)(4)(ii).

Changing Testing Method
  1. Plans using the prior year testing method may adopt the current year testing method for any subsequent testing year without requiring to notify or prior approval of the IRS. Safe harbor 401(k) plans, QACAs and SIMPLE 401(k) plans are considered to use the current year testing method.

  2. Plans using current year testing may change to prior year testing in three situations described in 26 CFR 1.401(k)-2(c)(1)(ii).

    1. The plan isn’t the result of aggregating two or more plans, and used current year testing for each of the five plan years before the year of the change (or, if lesser, the number of years the plan has existed).

    2. The plan is the result of aggregating two or more plans, and each of the aggregated plans used current year testing for each of the five plan years before the year of the change (or, if lesser, the number of years the plan has existed).

    3. A transaction in IRC 410(b)(6)(C)(i) (i.e., the employer becomes or ceases to be a member of an IRC 414(b), (c), (m) or (o) group) occurs and, as a result, the employer maintains both a plan using prior year testing and a plan using current year testing, and the change occurs within the transition period described in IRC 410(b)(6)(C)(ii) (i.e., by the last day of the 1st plan year beginning after the transaction).

Limits on Double Counting of Certain Contributions
  1. When a plan changes from current year testing to prior year testing, NHCEs’ contributions are likely to be double counted as shown below.

    Example:

    If a plan used current year testing in 2016, and then changed to prior year testing in 2017, NHCE employee contributions for 2016 will be counted twice; once in 2016 in calculating the NHCE ACP under the current year testing method, and again in 2017 in calculating the NHCE ACP under the prior year testing method.

    NHCEs 2016 contributions used in ACP Test 2016 Current Year Testing 2017 Prior Year Testing
    $1,000 $1,000 $1,000
  2. To limit double counting, plans can’t use QNECs in prior year testing if they were already used in current year testing in the prior year (26 CFR 1.401(m)-2(a)(6)(vi)).

Plan Provisions Regarding Testing Method
  1. A plan must state that the nondiscrimination requirements of IRC 401(m) will be met and must specify which of the two testing methods (current year or prior year) it is using. If the employer changes the plan’s testing method, they must amend the plan to reflect the change.

  2. Plans can incorporate the IRC 401(k) and IRC 401(m) tests by reference but must specify which of the two testing methods (current year or prior year) it is using. For the first plan year rule, (see IRM 4.72.3.5.1.2.2), a plan that incorporates the tests by reference must specify whether the NHCEs’ ADP/ACP is three percent or the current year's ADP/ACP. See 26 CFR 1.401(k)-1(e)(7) and 26 CFR 1.401(m)-1(c)(2).

Correction of ACP Test
  1. Plans may correct excess aggregate contributions in one of two ways under the IRC 401(m) Treasury regulations:

    1. Make QMACs or QNECs

    2. Distribute or forfeit the amounts in excess of the ACP limits

  2. A plan may:

    1. Use a combination of these methods

    2. Limit employee contributions or matching contributions, by its terms to prevent excess aggregate contributions from occurring.

  3. Plans can’t correct excess aggregate contributions by:

    1. Forfeiting vested matching contributions.

    2. Distributing non-vested matching contributions.

    3. Re-characterizing matching contributions.

    4. Not making matching contributions required under plan terms.

  4. Plans can’t do these actions with excess aggregate contributions for a plan year under 26 CFR 1.401(m)-2(b)(1)(iii) :

    1. Keep them unallocated

    2. Allocate them to a suspense account for allocation to employees in any future year.

    3. Correct them using the retroactive correction rules of 26 CFR 1.401(a)(4)- 11(g)(vii) and (5).

  5. If corrective QNECs or QMACs (for 401(m) plans using current year testing) don’t bring the plan within the ACP limits, the plan must correct the excess aggregate contributions by one or both of these ways, per plan terms:

    1. Distribute them with attributable earnings.

    2. Forfeit those that are matching contributions

  6. If a plan corrects by distributing employee contributions, it must also distribute or forfeit any associated match. This prevents the plan from failing the current and effective availability requirement of 26 CFR 1.401(a)(4)-4(e)(3) for the remaining matching contributions.

  7. A plan is not qualified if the ACP test isn’t corrected by 12 months after the end of the failed plan year

Determination of Excess Aggregate Contributions
  1. Excess aggregate contributions are the aggregate amount of matching contributions and employee contributions made to the plan on behalf of HCEs for a plan year over the maximum amount of such contributions permitted under the ACP test. Determine excess aggregate contributions in this order:

    1. Determine excess deferrals, if any.

    2. Determine excess contributions.

    3. Determine excess aggregate contributions.

  2. Determine the amount of excess aggregate contributions using a leveling method based on HCEs’ ACRs. Begin with the HCE with the highest percentage and continue in descending order of ACR percentages until the target HCE ACP is reached. The sum of all HCE reductions for all HCEs is the total excess aggregate contributions for the plan year. (See below.)

Distribution of Excess Aggregate Contributions
  1. Correct excess aggregate contributions by distributing using a four-step process:

    1. Determine the total amount of excess aggregate contributions that the plan must distribute.

    2. Apportion the total amount of excess aggregate contributions among the HCEs.

    3. Determine the income allocable to excess aggregate contributions.

    4. Distribute the apportioned contributions with allocable income (or forfeit the apportioned matching contributions, if forfeitable) to each HCE.

  2. The amount of excess aggregate contributions is the amount of matching contributions and employee contributions that the plan must return to HCEs for it to pass the ACP test.

    1. Start with the HCE with the highest contribution percentage (ACR).

    2. Continue, by leveling, to the HCE(s) with the next highest ACR(s) until the plan passes the ACP test ("ratio leveling method" ).

    3. On the other hand, identity of the HCEs who will actually receive excess aggregate contributions is determined based on the dollar amount of their contributions by beginning with the HCE with the largest dollar amount ("dollar leveling method" )

  3. Use the facts and table below as an example.

    Example:

    A, B and C are HCEs; D, E and F are NHCEs. The plan matches 50 cents for every dollar of employee contributions and all employees are fully vested in their accounts. The HCEs ACP is 5.54 percent. Under the ACP test, the greatest acceptable ACP for HCEs is 4.50 percent (2.50 percent +2 percent). Since 5.54 percent is greater than 4.50 percent, there are excess aggregate contributions. The plan states that excess aggregate contributions will be distributed or, if forfeitable, forfeited.

    Employee Compensation Employee Contribution Match ACR ACP
    A $100,000 $4,000 $2,000 6.00 percent  
    B $90,000 $3,900 $1,950 6.50 percent 5.4 percent
    C $80,000 $2,200 $1,100 4.13 percent  
    D $20,000 $1,000 $500 7.50 percent  
    E $10,000 0 0 0 2.5 percent
    F $10,000 0 0 0  
    1. Determine the amount of excess aggregate contributions by hypothetically reducing the highest HCE ACR until the maximum allowed ACP (4.50 percent) is achieved, or until the next highest HCE ACR is reached, whichever occurs first.

    2. Start with HCE B because he has the highest HCE ACR (6.50 percent). If B’s ACR is reduced to 6.00 percent, the ACP is 5.38 percent. This is still insufficient to pass the ACP test.

    3. Reduce A and B’s ACR using a formula, where x represents A and B’s ACR: (x + x + 4/13%) ÷ 3 = 4.50%

    4. Solve the equation. The answer will show what A and B’s ACR must be to produce a HCE ADP of 4.50 percent (4.69 + 4.69 + 4.13 = 13.51; 13.51 ÷ 3 = 4.50).

    5. Calculate the excess aggregate contributions. It’s the difference between the HCEs’ contributions at the old ACPs ($6,000 and $5,850) and the contributions at the new ACPs ($4,690 and $4,221), for a total of $2,939.

    6. Distribute the excess aggregate contributions with earnings (income for the plan year for which the excess aggregate contributions were made) to the HCE(s).The plan must distribute $2,939 from the HCE with the highest dollar amount of contributions used in the ACP test for the plan year until the contributions remaining in that employee’s account equal the plan-year contributions in the HCE’s account(s) with the next highest dollar amount and so on until the total is distributed. The plan must distribute $150 ($6,000 - $5,850) to A, to make A’s contributions level with B’s, and then allocate the remaining amount of excess aggregate contributions, $2,789, equally to A and B, so that each has $4,455.50 of employee and matching contributions remaining for the year.

      Note:

      The ACP test is deemed passed after these corrections even though running the test then would not produce a passing average ACP for HCEs.

  4. The distribution of excess aggregate contributions must include any allocable income. The income allocable to excess aggregate contributions includes income for the plan year for which the excess aggregate contributions were made and, for plan years beginning on or after January 1, 2006, and before January 1, 2008, for the period between the end of the plan year and the date of distribution (the “gap period”). See 26 CFR 1.401(m)-2(b)(2)(iv). For plan years beginning on or after January 1, 2008, the income allocable to excess aggregate contributions is equal to the allocable gain or loss only through the end of the plan year.

  5. Plans can correct a failed ACP test by distributing excess aggregate contributions, adjusted for earnings, to certain HCEs by 12 months after the testing year end. It doesn’t matter whether the plan uses the prior year or current year testing method. If the plan doesn’t distribute excess aggregate contribution by 12 months after the plan year end they were made, the plan won’t be qualified for the year of excess contributions and all subsequent years until corrected.

    Note:

    If the plan had a complete termination during the plan year in which an excess aggregate contribution arose, the corrective distribution must be made as soon as administratively feasible after the date of termination, but no later than 12 months after the date of termination

    .

  6. If plans don’t distribute excess aggregate contributions within 2 1/2 months (six months for certain EACAs) after the plan year end, the employer is liable for a 10 percent excise tax on these contributions. See IRM 4.72.3.5.1.7, IRC 4979 Tax.

  7. Individuals include corrective distributions of excess aggregate contributions (and allocable income) in their gross income (except for the part that consists of employee contributions or designated Roth contributions) in the tax year distributed. Plan trustees must report the distribution of excess aggregate contributions on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., using the appropriate code.

  8. These distributions aren’t subject to the:

    1. Consent rules under IRC 411(a)(11) and IRC 417.

    2. Early withdrawal tax.

  9. See 26 CFR 1.401(m)-2(b)(4)(1) for additional rules relating to the employer excise tax on amounts distributed more than 21/2 months (six months in case of certain plans that include an EACA) after the end of the plan year. See 26 CFR 1.402(c)-2, Q & A - 4 for restrictions on rolling over distributions that are excess aggregate contributions.

Forfeiture of Excess Aggregate Contributions
  1. A plan can correct a failed ACP test by forfeiting matching contributions (but not employee contributions), plus attributable earnings. Plans may only forfeit vested matching contributions, including QMACs, to correct for ACP if they relate to employee contributions that have been distributed as excess aggregate contributions. Most plans correct by distributing the minimum amount of employee contributions, together with the related vested match, until the ACP test is satisfied.

IRC 4979 Tax
  1. IRC 4979 imposes a tax on the employer equal to 10 percent of any excess aggregate contributions not corrected within 21/2 months (six months for certain EACAs) after the end of the plan year to which they relate. However, the tax doesn’t apply if the plan sponsor makes corrective QNECs or QMACs (current year testing plans only) within 12 months after the plan year end. If the QNECs or QMACs were insufficient to fully satisfy the ACP test, the tax applies to the remaining excess aggregate contributions.

  2. The plan has 12 months after the end of the plan year being tested to correct excess aggregate contributions. The plan can distribute excess aggregate contributions any time during the 12-month period, but the employer is subject to the 10 percent tax if the distribution is made after the 2 1/2 months (or six months for certain EACAs).

  3. The employer reports the excise tax on Form 5330, Return of Excise Taxes Related to Employee Benefit Plans and must file it by 15 months after the end of the plan year. See 26 CFR 54.4979-1 Even if the employer has an extension of time to pay the tax, they don’t have an extension of time to correct the ACP test.

  4. The tax is a one-time tax, meaning, if the plan sponsor doesn’t correct the excess aggregate contributions by the time in IRM 4.72.3.5.1.7 (1) for a plan year, the tax only applies for that year.

Examination Steps
  1. Review the plan to determine if it permits employee and/or matching contributions. If so, verify that the plan contains language stating that the ACP test (IRC 401(m)(2)) will be met.

  2. If a DB plan has separate DC accounts for employee contributions, IRC 401(m) is applicable to these employee contributions.

  3. If the plan is a SIMPLE 401(k) plan, a safe harbor 401(k) plan or a QACA, review the plan language and verify the employer distributed the proper notices and made the required matching or nonelective contributions. For a QACA, verify that the plan satisfies the uniform minimum default contribution requirement. If the plan satisfies the requirements of IRC 401(m)(10), (11) or (12), the ACP test isn’t required.

  4. If the plan states that it is a SIMPLE 401(k) plan, a safe harbor 401(k) plan or a QACA, but in operation, doesn’t meet the requirements of IRC 401(m)(10), IRC 401(m)(11), or IRC 401(m)(12) are not met, the plan can’t use the ACP test instead and is not qualified.

  5. If you need to run the ACP test, ask the plan administrator to explain the policy/procedures for ACP testing, including correction.

  6. Review financial audit reports and corporate minutes for comments on ACP testing and correction.

  7. Identify the employees in IRM 4.72.3.5.1 (4) who are eligible to make employee contributions and/or receive matching contributions.

  8. If an employee contribution is required as a condition of plan participation (i.e., a mandatory contribution) an employee who would be a participant in the plan if he or she made a contribution is treated as an eligible employee on behalf of whom no contributions are made. See IRC 401(m)(5)(B). This means a nonparticipant is taken into account in computing the contribution percentage. Since the nonparticipant contributes nothing, the amount of contributions that can be made on behalf of HCEs may be affected.

  9. Check the plan’s definition of compensation to determine whether it meets the requirements of 26 CFR 1.414(s)-1. If the Plan is a safe harbor plan, see IRM 4.72.2.12.2 for the definition of compensation that it must use.

  10. Reconcile employee contributions and/or matching contributions with source documents. Determine whether there has been any recharacterization of excess aggregate contributions.

  11. Analyze the testing method and ACP test results as performed by the plan administrator. Confirm the ACP test accuracy. Ensure the data used in the test is for the correct year or years.

  12. If the plan is disaggregated under IRC 410(b), make sure the plan sponsor ran the ACP test separately on each disaggregated plan. Apply the aggregation and disaggregation rules of 26 CFR 1.410(b)-7 as modified by the IRC 401(m) regulations to find the plan (or plans). Then, apply the ACP test to the proper employees. Make sure plans being aggregated aren’t prohibited from doing so. See 26 CFR 1.410(b)-7.

  13. Determine the HCE and NHCE groups.

  14. Determine the ACR for each individual HCE and NHCE.

  15. Verify the plan properly determined the ACP for each group per the plan provisions describing the testing method (current year or prior year).

  16. If the ACP test fails, verify the amount of excess aggregate contributions (see IRM 4.72.3.5.1.6.2) and determine if the plan sponsor has properly and timely corrected (see IRM 4.72.3.5.1.7 (2)).

  17. Make sure the employer includes the correct contributions in the ACP test (see IRM 4.72.3.5.1.1 (2)).Take into account for a plan year only those employee and matching contributions paid to the trust by the deadlines.

  18. Determine whether any recharacterized excess contributions should have been included in the ACP test.

  19. Verify the plan used the proper leveling method to determine the amount of excess aggregate contributions allocated to each HCE. Verify proper and timely correction.

  20. Review the plan document to see if it specified the correction method and if the plan sponsor followed it.

  21. Verify that the sponsor made corrections timely, and included applicable gains or losses.

    1. If the plan distributed excesses, determine whether the distributions were made within 21/2 months after the plan year end of the excess. If not, verify that they paid the IRC 4979 tax and filed Form 5330 filed. Regardless, the sponsor must distribute the excess by 12 months after the plan year end.

    2. Determine if the employer properly reported the distribution of excess aggregate contributions as taxable income (other than employee contributions) to the participant on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. and whether the employee properly included the distribution on his or her return.

    3. Determine if the plan reallocated forfeited matching contributions to other participants’ accounts during the plan year. If so, for IRC 415 purposes, treat contributions as annual additions for both the participants who receive them and the participants from whom they’re forfeited.

    4. Determine if QNECs satisfy IRC 401(a)(4) both before and after any are used in the ACP test. If the plan uses elective contributions in the ACP test, make sure it passes the ADP test both before and after some are moved to the ACP.

    5. Make sure the plan has neither: a suspense account to hold excess aggregate contributions or unallocated contributions. Treasury regulations for IRC 401(m) prohibit a plan from keeping excess aggregate contributions unallocated or allocating them to a suspense account for future years’ allocation to one or more employees.

SIMPLE 401(k) plans

  1. SIMPLE 401(k) plan rules are in IRC 401(k)(11), IRC 401(m)(10) and IRM 4.72.2.11, SIMPLE 401(k) Plans. SIMPLE 401(k) plans:

    1. Must be maintained on a calendar-year basis.

    2. Are deemed to satisfy the ADP and ACP tests.

    3. Aren’t subject to the top-heavy requirements.

    See IRM 4.72.2.11 , Simple 401(k) Plans for details on SIMPLE 401(k) plans.

Safe Harbor 401(k) plans

  1. Plans containing a CODA may provide a design-based safe harbor method which is treated as satisfying the ADP and ACP test if the arrangement meets certain contribution and notice requirements of 26 CFR 1.401(k)-3(a) through (h) and 26 CFR 1.401(m)-3(a) through (j). See IRC 401(k)(12) and IRC 401(m)(11).

  2. If the plan is a safe harbor 401(k) plan, see IRM 4.72.2.12, Safe Harbor 401(k) Plans.

Qualified Automatic Contribution Arrangements

  1. Plans with QACAs that meet the requirements of IRC 401(k)(13) and IRC 401(m)(12) are deemed to pass the ADP and ACP tests. To be a QACA, the plan must under 26 CFR 1-401(k)-3 and 26 CFR 1.401(m)-3:

    1. Provide for certain levels of automatic contributions.

    2. Give certain matching or nonelective contributions.

    3. Satisfy a notice requirement.

  2. For a plan containing a QACA, see IRM 4.72.2.13.1, Qualified Automatic Contribution Arrangements (QACAs), through IRM 4.72.2.13.5, QACAs Notice requirements.