Leaderboard

A good way to prevent sham terminations is to have a wait period on receiving distributions of 30-60 days. Some plans will have an exception to the wait period for those at NRA.

If the employee worked on 12/31 and quit that day, then they were employed on 12/31 and due an allocation if that is what the allocation requirement is for that source of money.

Allowed? I'm not going to opine on that because legal or not, I think it is a bad practice. Start with, rarely, if ever, are plans "identical" - which means participants really aren't making "informed decisions" about their deferrals - let alone investments (even if a QDIA is used, the specific QDIA may be a factor in a participant's decision to participate or not, and to what level. We've had clients who wanted to do that, and even suggested a "negative election" approach (i.e., unless you tell us otherwise, we're going to enroll you in the plan at your deferral rate in your prior employer's plan/ I like that less (as I read the regs, a deferral, other than an ACA, must be an affirmative election). Tell the acquirer that tis is a great opportunity to impress their new employees with the benefits of the new employer's plan, probably other benefits as well, and could be a good introduction to the company.

Agree, if they never met eligibility that applies to both 401k and SHNEC

Couple of thoughts: 1. He won't be an HCE until later in his employment (not sure of his pay in 2022). 2. If he's eligible, he has to get a top heavy minimum (I would assume).

That's a great question. My initial reaction was "it's ok" because you're just clarifying what it means to be employed (or not) on the last day. But the regs refer to "...employment on the last day of the plan year..." which says to me that you can't very well say someone employed and terminated on the last day is, well, NOT employed on the last day, for this purpose. Unfortunately the examples refer to "...employees who have not separated from service as of the last day of the plan year..." which muddles things, at least for me. In any event, no way would I use a term date of 12/31 and say that person is not employed on the last day of a calendar year.

The question remains, if a plan answers "No" to this question, meaning they treat an employee who terminates on 12/31 as not being employed on the last day of the plan year, and they use a safe harbor allocation formula with a last day requirement, would they still be treated as meeting the requirements of the design-based safe harbor in the 401(a)(4) regs?

Right. The PLRs that first acknowledged the ability to do loan rollovers back in the 1990's and put them on the map, if I recall correctly, stated in their facts that the entire accounts were being rolled over, including the loans. But I think it's probably not really a requirement under the law.

Our office uses FT William as our software of choice for plan documents and 5500 services. With FT William's Post PPA documents, the last day of employment and an employee that separates service on the last day is now an option that an employer can elect. 19a. If the Plan has a last day requirement, an Employee who terminates on the last day of the applicable period is treated as being employed for purposes of satisfying allocation conditions Yes / No https://www.ftwilliam.com/images/icons/minus-12-11.png

Bottom line: Were they paid for 12/31? If so, they were employed on that day.

Seems like a facts and circumstances determination.

Yes, that is how we do it. So someone is saying they need to make their termination date 1/1 to get an allocation under a last day rule it sounds like. If they got comp and hours for 12/31 I don't see how you don't say they weren't employed on 12/31. What were they being paid for if they weren't working that day????

correct

Assuming: The seller is terminating their 401k plan. The 401k plan will authorize participants to take a distribution. The buyer will be hiring some, but probably not all of the individuals who have an account balance, and/or a loan outstanding. I would encourage the plan sponsor to amend their plan so as to permit "effective transfer" of outstanding plan loans. To be truly effective, this would require the plan to be amended as necessary so that: The plan accepts rollovers from all plans and IRAs (except Roth IRAs), The plan offers multiple loans (regardless of number) up to the code dollar limits, and The plan incorporates electronic banking so that not only can plan loan repayments continue post separation, but so that plan loans can be initiated post separation. I would not limit the plan provisions solely to this single transaction, but facilitate such "transfers" for any new hire or current worker who becomes a participant in the plan, or for any current or former worker who is a participant in the plan. See: https://401kspecialistmag.com/how-to-stop-401k-leakage-from-plan-loans/ Essentially, you roll over the remaining account balance, then borrow from the new plan, as necessary, where each loan from the new employer's plan is used to complete the rollover process. Happy to discuss further, on why this is a superior solution in terms of avoiding leakage and maximizing participant perceived and actual value, and engagement.

If he has no ownership, it's not a CG, nor can it be an ASG unless he's principally providing management services. That said, this could be a shared employee situation if the attorney is utilizing the firm's staff. It could also be some sort of de facto partnership if he has a profit interest in the firm (as opposed to simply a percentage of billing compensation). This sort of determination should be made by legal counsel. TPA points out the issues of an ASG and/or shared employees (IRC 414(m) and Rev Ruling 73-447. Then let the lawyers figure it out.