Leaderboard

A SIMPLE 401(k) is a combination of all the bad parts of a SIMPLE IRA and a 401(k) plan. I've never run across an employer for which a SIMPLE 401(k) was a good solution.

I've never seen a non elective contribution calculated on a per pay period basis.

Then it's only owners. Non owners aren't HCEs the first year of their employment.

Yes, the 3% can be used toward gateway. No, the safe harbor match cannot be used toward gateway.

Well, first thing that comes to mind is are there ANY allocation requirements? (hours, last day, etc.) If contributions re made prior to satisfying those allocation requirements, could be a mess. We recommend that if they want to "pre-fund" - they put it into a segregated employer account, then after end of year, when testing can be determined, and they have cooked their books to determine how much they can/want to contribute, move the money then. It's also just a lot more confusing - more opportunities for error either with internal or external payroll, particularly if there is any excluded compensation category, etc. I've seen a couple of plans that utilized per payroll, with NO allocation requirements and a design-based safe harbor flat percentage that worked, and I've seen a couple that were disasters. I certainly would not recommend it.

To use a numerical example, assume you have 2 participants over the age of 50, both over the 401(a)(17) limit of $305,000 for 2022. Part#1 defers $27,000 (the 402(g) limit + the catchup limit) Part #2 defers $20,500 (just the 402(g) limit) For 2022 they both have an ADP of 6.72% ($20,500 / $305,000 - since the catchup is ignored) Now suppose that after running the ADP test it is determined that they each need a refund of $3,000 to pass the testing. Part#1 has already used up all of his catchup limit and would receive a $3,000 (+/- earnings) refund. Part#2 has not used any catchup. Since the $3,000 refund is less that the $6,500 limit, all $3,000 would be recharactherized as catchup and he would receive no refund. The Plan does not rerun the ADP test after these corrections.

What Bill said!!

Catch-up contributions are not included in the ADP test, in other words, the participant's ADR is determined without regard to their catch-up contributions. Deferrals which are reclassified as catch-up due to exceeding the 402(g) limit (or another limit such as a plan-imposed limit) are not taken into account when determining the amount of a participant's excess contributions and would not be refunded. If a participant is eligible for catch-up and has not otherwise exhausted their catch-up limit, their excess contributions may be reclassified as catch-up, up to the available limit, rather than being distributed.

The Safe Harbor will pass ADP, you don't need to run. The Safe Harbor may pass ACP without running if you meet the requirements in the code. Making any additional employer contribution (such as profit sharing) will end the "deemed not top heavy exemption" for the year you make an allocation. Match can not be used to meet gateway but can be used off set TH minimum contribution if the document allows. As Bagwell notes these are broad questions that have long answers with sometime the answer being "it depends".

Contributor Zeller is spot on! Another way to think about this is that one does not even know if money has to be returned until the Catch-Up (if the P is eligible for one and it is in the document) is utilized.