All Activity

Thankfully, no. I do draft some SPDs and plan docs, but not a large volume. I see these when clients send me what I ask clients what they have been using so I have a reference. So many don't know the difference between a plan doc, an SPD, or an SBC.

QDROphile, since I so often am largely in harmony with your clear-minded observations about ways to administer employee-benefit plans, I hope you’ll teach me your reasons about why it’s unwise to name “the employer” as an employee-benefit plan’s administrator. Assuming a typical situation in which no outside service provider will serve, is your suggestion that the governing documents ought to name a particular human or set of humans? Or is your idea more than that? Is limiting the oversight responsibility of the employer’s governing body a part of your reasoning? Is an element of your reasons that naming “the employer” could set up a claimant’s argument that she reasonably believed the person she received a written (including emailed or texted) or oral statement from was someone with implied authority to act for “the employer” as the plan’s administrator? Do you have further or different reasons about why it’s unwise to name the employer as the plan’s administrator? I’m seeking to learn (likely about situations I have not experienced).

No. If initial eligibility is satisfied for 3% SHNE and someone enters the plan they get the 3% SHNE for however long they were employed and in the plan, whether a day, a week or through year-end.

I doubt this is possible but I wanted to be 100%. We've always provided the 3% nonelective safe harbor to all eligible regardless of employment condition on last day or hours worked. A large client does not want the terminated employees to get 3% as the cost is fairly high. A 3% profit sharing plan to those still employed does pass coverage but the plan will not pass ADP and the client is firm - no corrective distributions. Is it possible to test the terminated employees ADP (there are no HCEs in that group) and only give the safe harbor to those still employed? The plan is not top heavy. Just taking a wild shot on this. Thank you, Tom

The ACA aspect is a really tricky one here. It can easily subsume the whole wrap plan document/SPD if you really go into the details. Here's my take on how to handle: https://www.newfront.com/blog/compliance-fast-where-to-define-eligibility-for-health-plans Four Eligibility-Related Areas Typically Addressed Outside Wrap SPD There are a few areas that deserve additional attention when determining if and how to address eligibility in the wrap SPD: 1) ACA Employer Mandate Applicable Large Employers (ALEs) need to offer minimum essential coverage that is affordable and provides minimum value to full-time employees (and their children to age 26) to avoid potential ACA employer mandate penalties. There are two different measurement methods available to determine whether employees are full-time (i.e., averaging a least 30 hours of service per week) for purposes of the ACA: the monthly measurement method and the look-back measurement method. The ACA full-time status determination methodology is unendingly complex, particularly with respect to the look-back measurement method. Attempting to fully explain the many intricate details of the measurement, administrative, and stability periods, for example, would be so lengthy that it would likely overwhelm all other content in the wrap SPD. Accordingly, best practice will typically be to include a “fail safe” type provision in the wrap SPD addressing the employer’s ALE status and that certain aspects of the applicable measurement method may qualify the employee for eligibility. Employers wishing to provide a more comprehensive description of the ACA full-time employee definition should generally refer to a separate company policy that is not restricted by the confines and multiple competing objectives of the wrap SPD.

And if you haven't been current year testing (SHM or otherwise) for five years, I think you need to stay current year on the change to discretionary match until you hit five years. Unless there is some exception to that requirement when moving away from SH plans of which a more knowledgeable contributor to this forum may be aware.

I don’t think one can be too exacting about plan terms. Sometimes I wonder if I should be chagrined at the number of my posts that that assert something like, “the plan document sucks.” That said, sometimes it is appropriate to be vague, though not ambiguous. The issue with an artfully vague provision is that the fiduciary responsible for interpreting the provision has to apply it and might not be cued in to the intent behind the vagueness, and eventually may have to solidify the meaning over time as the provision is consistently applied. Also, the fiduciary may be uncomfortable with interpretation, especially if the fiduciary is unskilled or inexperienced (such as “the employer”, whoever that is at the moment — a dig at those who think it is OK to designate the employer as plan administrator). I hope you are not the fiduciary responsible for interpreting plan terms. As you describe the terms, the plan document sucks. If you are not, consult the poor fiduciary who is, as questions come up. If you are the fiduciary, consult the plan sponsor to determine the intent behind the provision, then to the extent feasible and consistent with qualification requirements and any history of interpretation/application, create a written interpretation that implements the appropriate intent and eliminates the uncertainties.

My context is for retirement plans, but agree with you that such language is too loose and open to a lot of different interpretations, which may be the intent so plan sponsors can interpret as they want. This can be dangerous when plan sponsors are not consistent with such interpretations from year to year. I would not use such a provision in a retirement plan. I would either simply specify an hours requirement for a specified time frame, or if "full time" is required for eligibility then that term must be specifically defined by clear and concise criteria.

I'm some years removed from that sort of detail, but as a SH design by definition is current year testing, so you'd have to have been SH or otherwise current year for five years (if the below is as intelligent as advertised). If that was the case and you could change, why wouldn't the applicable prior year ACP be the ACP as calculated with the SHM? Say they had a stated non-SH match and switched to discretionary match, you would use the ACP from that stated match, how the match is determined is irrelevant in that regard, is it not? A match is match is a match. AI Overview To change from current year to prior year testing for a 401(k) plan, the plan document must be updated, and you generally must have used current year testing for at least five consecutive years or for the plan's entire existence. This change is restricted by IRS regulations to ensure plan consistency.

I review a lot of plans where eligibility is written as "Full-time employees working 30 hours per week". To me, this raises multiple concerns: First, it doesn't account for variable hour employees of ALEs and lookback/measurement/etc. Second, and more concerning to me, is that the language is loose. If an employee hits 30 hours in one week, is that employee not then eligible? Especially if 'Full-time' is not a defined term? There has to be a better way of drafting that, right? Or am I just picking nits? Thanks in advance!

Husband A treated as owning 100% of Company A and 50% of Company B (taking into account his wife's ownership). Husband B and Wife B are NOT common owners so are not taken into account for the brother-sister analysis. You're not even a controlled group for 415 purposes because those rules don't even apply to brother-sister groups (and even if they did the threshold is MORE than 50%, which is interesting but not relevant). You only asked about Controlled Groups but I think sometimes people lump together controlled groups and affiliated service groups even though they are different questions. My point being you would need to watch out for Affiliated Service Group rules. In addition of course the other concerns Belgarath mentions 😄

My knee jerk reaction is that the prior year discretionary match percent for testing is 0%. This is not a first plan year, as indicated by prior year Form 5500s filed. Also, the source was inactive, it is not "new". I'll let others give you the citations.

Safe harbor 401k plan has a prior inactive discretionary match. For 2026 they are removing the safe harbor match and reinstating the discretionary match. Can the plan document use prior year testing under the first plan year method in order to assume 3% for NHCE’s for purposes of the ACP test? I was thinking no since there has previously been a discretionary match and adding it back does create a first plan year. But as always I appreciate your feedback!

ha, this sounds like a plan I'm taking over. 20% after year 2 isn't illegal, so a terminated guy's going to stay 20 even though his cash balance plan was set up with a normally impermissible 2/20. Meanwhile the guy listed at 60% on the takeover records obviously will have to bump to 100.

As always, prompt and excellent guidance! Thanks, Brian!

There aren't rules around how they have to adjust. They can adjust in any manner they like as long as the total/overall/aggregate/combined HCE contributions are reduced low enough to pass the test (i.e., you get above the 55% threshold). That said, you almost never see employers taking a different approach here. Almost always employers will reduce HCE contributions by a uniform percentage amount. That's pretty universally viewed as the most fair way to handle. But again, they aren't bound by that. The other advantage to doing the standard percentage-based HCE reduction is they can rely on the TPAs calculations to determine how much they have to reduce each HCE. But I think your point is specifically how to address new HCE elections mid-year after a failed pre-test, which is not an area with any set process-- 1. Since it's possible for us to have another HCE enroll mid-year, am I correct that we have to apply the same reduction to any HCE mid-year enrollees? Well you don't have to, but you should at a minimum do that. And also I'd recommend considering going to 57.5% or 60% to provide some buffer. Otherwise you may have to reduce HCEs again by the end of the year if the mid-year non-HCE participation rates are also not helpful. You might also consider excluding new HCE participation for the remainder of the year if you want to keep it at 55%, that way you would be certain to pass. 2. If yes, how do we determine what the reduced amount should be? The same percentage as the existing HCEs, at a minimum. Again, the rules don't really care how the sausage is made as long as you get to 55%. It's all just an HCE issue at this point, so it isn't discriminating against non-HCEs regardless of how you handle. 3. Other than exclude HCEs altogether moving forward or setting a low election maximum, is there anything else I'm missing? An employer match for non-HCEs is an attractive option of the employer is willing to allocated budget to the dependent care FSA (rare). Also don't forget the top-paid group (top 20%) election may be an option. But no, I don't think you're missing anything. These 55% average benefits test rules are always a hassle. How you want to handle mid-year HCE elections after a failed pre-test is just a matter of how much wiggle room you think you need to pass as of the last day of the year. More details: - https://www.newfront.com/blog/the-dependent-care-fsa-average-benefits-test - https://www.newfront.com/blog/the-obbb-dependent-care-fsa-increase-could-backfire Slide summary: Newfront Office Hours Webinar: Section 125 Cafeteria Plans

We offered the new maximum DCFSA limit ($7,500), performed the test following our open enrollment period and have one HCE that elected the new maximum $7,500, that needs to be reduced in order to pass the test. My questions are: 1. Since it's possible for us to have another HCE enroll mid-year, am I correct that we have to apply the same reduction to any HCE mid-year enrollees? 2. If yes, how do we determine what the reduced amount should be? 3. Other than exclude HCEs altogether moving forward or setting a low election maximum, is there anything else I'm missing?

Thanks Paul. If someone has 2 years of service though, we have to maintain them as 20% vested correct? We can't take that away from them since they earned it under what the document said?

From the way the OP is worded, it sounds as if the client does not want to assume any responsibility for signing a plan document without fully understanding what they were signing, and they now want to declare this is totally the TPAs fault. One thing that is almost always certain, when the IRS discovers a disconnect between the plan document and plan operations, the plan document governs and the plan sponsor is accountable for the content of the document. The only instances where the IRS possibly may be possibly swayed on a hope and a prayer is if there is an overwhelming amount of documentation contemporaneous with the adoption of the plan and the original intent to have certain provisions that were not reflected in the document. The IRS more likely be agreeable to accepting the retroactive application of plan provisions that are favorable to participants and are not discriminatory in operation. Given the changes in question, there should be no issue with accelerating the vesting schedule, but be careful with the change in NRA for any participant who is withing three years of age 62 (since attaining NRA would trigger full vesting). Be a little wary of this client who will blame you when something goes off the rails, and make sure you maintain documentation of source data and any operational issues when they arise. This is particularly important in this environment when plans can be administered base on documented administrative procedures that have not yet been codified into the formal plan document.

for PensionPro (Remote)View the full text of this job opportunity

Normal Retirement should be 65 (it was setup as 62) Vesting is going from 6-Year Graded to a 3-Year Cliff I'm not sure the NRA has a big impact on anything. I guess we need to give everyone who earned vesting during that time that vesting, but make them 100% after 3-years?

For each previously written provision the plan sponsor now considers incorrect or unintended, is the to-be-amended provision more or less favorable to a participant than what the documents governing the plan now state?

We are taking over a client whose TPA messed up the original plan setup and didn't put in the correct provisions for certain things (particularly Normal Retirement Age & Vesting Schedule). The question is, how far back can we go to correct these things (the plan is roughly 2 years old, the client just didn't notice the error until now)? Or can we not do them retroactively and just have to do it moving forward. I'll be honest, this is one I've never encountered so I wanted to be sure we did it correctly.

In that book, in the bio, it mentions some all stars (Mike Preston, Larry Starr, et al). And also the PIX message board. Good times, indeed!

I was straightening some things up around my house this weekend. Part of it involved moving some books from one bookshelf to another. I came across Who's the Employer: A Guide to Employee and Aggregation Issues Affecting Qualified Plans by S. Derrin Watson. I hadn't picked it up in a long while and I was wondering just how old that book is. Turns out, it's a second printing from 1998. My boss gave it to me in like 2000. She had another copy. Maybe the second ed.? I'm wondering how much has changed from 1998 to the current 8th Edition...