Leaderboard

It doesn’t say “first” or “up until”. You’re adding those things. Things generally happen in order. let’s say someone makes $2,350,000 per year and defers 1% of pay each paycheck monthly. The match formula is 100% up to 5% of pay. The person would defer $1,958.33 each paycheck and receive a match of the same. Again assuming the document is not written stupidly, that would continue during the year. The payroll would need to be setup so that deferrals stop when reaching the 402(g) limit (not the comp limit). It would also need to be setup to stop the match when it reaches $17,500 because that is 5% of $350,000 and the maximum allowable match. At the end, the $350,000 comp limit is applied. But it’s not required to be the first $350,000 earned.

In my view, there isn't a stock answer to your question. Since your client is engaging a 3(16) fiduciary, they have a fiduciary duty to assess the potential risk of loss/costs to the plan that could result from the proposed 3(16) fiduciary's acts (or omissions). Without seeing the scope of the limitation of liability/indemnification provision or the scope of services they will provide under the agreement, not sure how one would quantify the limitation. I mean the agreement must be reviewed to determine what is the possibility of, and the maximum amount of, any potential loss for the plan based on the services provided and, perhaps, if these potential losses were to arise, what could be the additional administrative or other costs for any actions your client may have to take to mitigate/minimize the potential losses? (Editorializing here but honestly, many agreements that purport to be 3(16) agreements don't even provide the third-party being retained enough discretion to, and/or require any services that would, cause them to be fiduciaries). That said, the bulk of our clients are plan sponsors. We frankly invariably strike all this limitation language and advise our client to tell the proposed providers that they should ensure they have good enough E&O insurance to cover their negligence (and indemnity to us) and that they must provide the client with documentation indicating that they have an ERISA 412 bond that covers them separately with regard to their fiduciary acts involving the client's specific plan or one that covers theirs and the client's actions under the plan both but separately (i.e., with separate $ limits). Our clients generally stick with this and don't sign providers who will not "step up" if they are at fault. On the other hand, when we advise clients that are TPAs regarding limitations/indemnities, the form contract generally includes 1-year fee limits. These TPAs, though, generally charge much higher service fees (basis points type fees) than what your proposed provider is charging. Also, as with most indemnity provisions, this amount is almost always the subject of heavy negotiations and does not remain static... the agreed upon limits range from elimination of the limit to a multi-year limit to sticking with the original 1-year fee limit (here, the ultimate limitation depends on the scope of the work and the fees generated under the contract... how much do they want the business).

Note that for the 402(g) excess deferrals, earnings are only taxable in the year of distribution. The 1099-R for the year of deferral only includes the actual excess deferral amount, but the 1099-R for the year of distribution would include the amount of the excess deferrals and the earnings (calculated from the date of failure through the date of correction... hopefully there wasn't a loss as losses treated differently). The distribution of the excess amount contributed due to exceeding the plan limit does not have the same double taxation consequence for the participant but it would include earnings calculated for the period of the failure and the excess amount plus earnings would be taxable in the year of distribution. Since these distributions are taxable, the 1099-R should indicate they are not eligible for rollover etc. Also, these distributions may be subject to 72t penalties unless an exception applies, 20% withholding, and spousal consent, if required under plan. Any forfeiture of matches would include a forfeiture of related earnings calculated for the period of failure. Of course, any forfeiture of a match is not taxable to the participant and there is no 1099-R reporting requirement.

It would not be subject to gateway if you are not cross-testing and are testing on contributions. You still need to satisfy coverage. If the document is set up with those 3 groups then that could be a reasonable classification and you can continue with average benefits. Then if you need to move someone from group 3 to group 2 to pass you could do via an 11g amendment. If the document just says individual groups then I think it's covering 7 and passing the ratio percentage test or nothing.

My apologies Ms. Baker... I'll keep my posting more professional Thanks Bill.... I'll do that. I went to the DFVC link and this is what it said... Sheesh... I guess I can't do anything right now

Thanks guys, I think I finally understand. I was thinking that once comp hit 350k for the year, no additional matching was permitted. Seems like that is not correct. Sounds like matching dollars are still permitted after the comp limit is reached so long as the YTD match dollars don't exceed the calculated max for the year.

If the 402(g) excess was also a 401(a)(30) violation, then the plan would have to distribute the excess now in order to correct the qualification failure. If it was not a 401(a)(30) violation - for example, because the participant exceeded the 402(g) limit only when combining their deferrals in this plan with another plan of an unrelated employer - then that excess couldn't be distributed until the participant has a distributable event from this plan. In either case, the participant will experience double taxation on the excess; once because it exceeded the maximum they could deduct on their 2022 income taxes, and again when it is distributed.

they can put a class exclusion in the document, and as long as testing passes with those folks as zeros in the test, its fine. same as any other class exclusion. But if the exclusion covers the majority of the NHCE, and all the HCE are in the plan, likely testing won't pass.

If you are at $0, and pass all testing you don't need gateway for that employee. Once an NHCE gets any employer allocation, even just $1, they need to get gateway. So yeah that employee need gateway. I'm not sure why you think profit sharing doesn't trigger gateway. Any non-match employer allocation will trigger a gateway in most plans like this. That is safe harbor non-elective, profit sharing, and reallocation of forfeitures being the most common. There are some general test exceptions to gateway in the regs but it doesn't sound like your plan design meets any of those exceptions.

I took it to mean that if the Plan is allowed to pay expenses, a pro-rata share could be charged to the suspense account, but the suspense account could not annually pay 100% of the plan expenses like a forfeiture account might. That is each year it would pay a declining share as it is allocated to participant accounts.