Hopefully this is a quick question for the experts out here.  The disproportionate QNEC rules under 1.401(k)-2(a)(6)(iv)(D) limit the amount of prevailing wage contributions that can be included in ADP testing to 10%.  We have a NHCE who received 14% in prevailing contributions in 2023.  Is the entire 14% excluded from ADP testing or can we use 10% and back-out the other 4%?

Our testing software is backing out the entire 14%.  This is the first time I've had someone over 10% and just want to be sure the software is treating it properly - or maybe I don't have it coded properly in the system.

Like Andy H., I am retiring tomorrow, January 31. These message boards have been a great source of knowledge and information, and I thank the folks who make this possible! 

Best wishes and good luck to everyone!

A client has asked me this question:

On 1/1/2023, ownership of A corp was transferred from Mr. & Mrs. A to the A's 3 children. As of 1/1/2024, can Mr. & Mrs. A have deductions through our Section 125 Cafeteria Plan for their insurance premiums?

Not quite sure on the family attribution rules as it relates to IRC 125 plans. Any responses would be appreciated, thanks!

I have a plan, the sponsor wants to have a SH Match of 100% up to 25% of compensation.  Can this be a SH Match formula?  

And... in the future, will this design satisfy Top Heavy ?  (of course those employees who are eligible but don't defer will need to get the 3% TH Min).

Hello - Line 14a on the Form 5500 reads "Does this plan satisfy the coverage and nondiscrimination tests of Code Sections 140(b) and 401(a)(4) by combining this plan with any other plans under the permissive aggregation rules?" Y or N. Our software vendor has as the input question "Plan satisfies the coverage and nondiscrimination tests of Code sections 410(b) and 401(a)(4). Y or N.

What is the correct answer for a single-employer plan (no aggregation) that does satisfy the coverage and nondiscrimination tests of Code sections 410(b) and 401(a)(4) - but without aggregation?  This is a confusing questions and almost reads like a trap

A 401 (k) plan converted to a recordkeeper that doesn't handle plan documents. The Plan is still operating off the volume submitter document of their prior recordkeeper, and the new one is administering the plan in accordance with that document, however it won't be updated or maintained.  What should their next step be? They've reached out to two tpas who won't do it for them because it doesn't comply with theirs. Do they need to get an Erisa attorney to draft one? Their current recordkeeper is telling them they don't need a new plan document to recordkeep the plan so its making it difficult to convince them they need to spend the money on an attorney. Any thoughts or suggestions?

Looking at how attribution affects my common and identical ownership tests.  This shouldn't be difficult, but......

Husband owns 40% of company A, spouse separately owners 40% of company A.  Two other unrelated individuals own 10% each.

No exceptions apply, so husband/spouse are considered to own 80% of Company A.

Husband and wife each own 20% of Company B, same thing, attribution applies and they owned a combined 40%.  The two unrelated individuals from Company A also own 20% each.  Third unrelated individual owns the other 20%.

When I am adding up my common ownership do I use 40% plus 40% for husband and wife for Company A, or is it 80% and 80%?  Is Company B 20% and 20% or 40% and 40%?  Same with identical ownership then, are they each 40% or 20%?

It has to be the lower percentages, correct, otherwise we exceed 100% for common ownership, which can't be correct, can it?

Thank you

A plan requires a top-heavy minimum for all non-key employees.  The rules state that it only has to be given to non-key employees still employed on the last day of the plan year.  The plan has a participant that retired during the plan year that is receiving the matching contribution due to the last day 1,000 requirement being waived for participants that are normal retirement age. The same waiver is for any profit-sharing allocations.  They would like to apply this to the top-heavy minimum allocation but I'm being told by our recordkeeping software provider that a requirement to receive a top-heavy minimum requirement is that a person has to be employed. Termination is not waived for any reason for the Top-heavy minimum allocation. 
 

We administer a small 401(k) plan 

A participant died and the plan sponsor sent us a copy of the participant's most recent Designation of Beneficiary Form. It was signed a few years ago.

The Designation of Beneficiary form provided room to name up to two Primary Beneficiaries and up to two Secondary Beneficiaries. The form also indicates that the participant may attach an additional form should they want to name additional beneficiaries and as long as it the form is signed and dated by the participant it will be valid.

Now the Designation of Beneficiary Form is clear that the total of all primary beneficiaries share of benefits must total 100% and the total of all secondary beneficiaries must total 100%.

This participant was not married and named a friend as primary beneficiary entitled to 50% of the benefits and no other primary beneficiaries entitled to the remaining 50% share (i.e. the total does not equal 100%). Same with the secondary beneficiaries as their share of benefits does not equal 100%.

Question: would this be considered an Invalid Beneficiary Designation?

And if so, I believe we would follow the standard hierarchy allocation of assets as described in the plan document.

Thanks.

So 2024 has already begun and a plan has a pay-period safe harbor match.  A client advisor is asking if they can amend the plan to an annual match to eliminate the requirement to pay the match quarterly.  (This is not our client and apparently the plan sponsor has been paying the full match after the end of the year.)  I told the advisor, I believe this is a prohibited amendment at this point for 2024 and that they need to begin paying no later than the end of the following qtr.

I expect everyone will say it's a prohibited amendment for 2024 now even though an annual/true up match could effectively increase the match for some.

Tom

Hi

Checking a Combo plan CB/DC and came across the following:

CB definition of compensation is W-2 and includes all

DC definition of compensation is W-2 and includes all (section 125 as well - not deemed)

But

Under a separate addendum, DC excludes deemed 125 compensation in Compensation and 415 Compensation (language from the document).

So when I check for compensation in DC for allocating PS, Gateway, Top heavy and also for testing, how does the "deemed 125 compensation" language kick in.

So confused.

Lic established TPA with Association on the market for acquisition. Lic in 25 states. For more details send an email to Asaputracpa@gmail.com 

Does anyone know of any providers that have an election form for participants who want to their employer contributions done as Roth? 

I know plan documents don't have language for amendments, and software needs to be updated to catch-up, and lots of things are still in flux, so personally I think plans should try to wait, and just live with the existing options for in-plan Roth conversion. But I have a few that are insisting on offering the SECURE2.0 ER contributions as Roth to their participants NOW. 

It would be helpful to know if anyone has seen any forms yet for this option. Either so I know plans with those providers will have an easier time doing it, or custom forms can be created by looking at some examples. And bonus imaginary internet points if you can actually share the form here. 🙂 

Thank you all for the help!

Really stupid question here. Suppose a participant terminates employment on (X) date, and receives final paycheck 3 days later. Included in that final paycheck is a "severance" payment that would not otherwise qualify as "post severance" pay. Because the paycheck date is AFTER the severance date, this is considered under the post-severance rules, and is excluded.

Now, suppose the final paycheck date is, in fact, the day before the actual severance date. Now it just falls under the regular rules, and if plan defines as W-2, then it would be included, right? You can't call it post-severance if it is pre-severance, agreed?

Now for the real question. If paid ON the actual (X) severance date, would you classify as pre or post severance? Any "gray" on this - for example, if it was paid as a separate check instead of being included in one big, final check?

We have a client who signed a plan amendment to change their match computation period from per payroll to annual with a true-up provision, but they signed the amendment with the wrong intended effective date. They intended to start the true-up for the plan year 2024 (for true-up to be paid in early 2025), but instead signed the amendment effective 01/01/2023. They don’t want to fund the true-up for 2023 as they have not budgeted for this.

To fix, we asked the RK to draft a document with effective date 1/1/23 with the original match computation of per payroll, while also drafting a second document effective for 1/1/24 with the change to annual with the true-up.

The recordkeeper is reluctant to process these as they say this could be viewed as a cutback of benefits. Do you agree with that? The plan has never funded a true-up and have been paying their matching contributions per payroll as they always have. Their match is also discretionary, the formula is not stated in the plan document.

It seems like their plan document allows some flexibility in the attached screenshot.

PAA Screenshot.docx

The sole participant (100% owner) in a DB plan was in dire need of $100k while still employed and was told by her TPA that the only way to get such a distribution would be for her to elect to immediately start receiving her benefit as a 30-year annuity.  Although she was supposed to take $100k out of the plan every year due to this change, she only took $100k the first year and never took out any more.  Is she able to now make another election to change this back to not having to receive distributions until she retires?  The doc unfortunately doesn't address such a situation. 

It seems the annuity circumvents the requirement that DB plans can't make inservice distributions until the attainment of age 62, which the participant hasn't yet reached.  As for the annual payouts after the 1st distribution that were not taken - would it be acceptable for her to be paid from the plan the missed distributions with interest at this time?  Is any other option or correction/adjustment/reporting needed to fix all this, if it can be fixed?   

What is the maximum SH NEC % that can be written into a SH plan?   6%

Notice of Adverse Claim-Interest.pdf Notice of Adverse Claim- Interest Cover Letter (2).pdf

A DBP requires 1000 hours for a year of credited service. However, final average earnings (FAE) is determined monthly through end of employment. Therefore, someone who terminated and worked less than 501 hours in a year could nonetheless experience an increase in their accrued benefit by virtue of an increase in FAE despite not earning credited service.

Are we able to statutorily exclude these participants for 410(b) testing or are they considered benefiting or could benefit (i.e., term < 501 hours NOT being the reason they fail to benefit)? I know we would have to include or exclude all such participants on whichever basis whether they experienced a benefit increase in actuality or not.

I did a little digging but couldn't find anything right away so am turning to very small colleagues in the forum. Thank you in advance.

CB/DC combo

401k with NESH at 3%

Terminated on 12/22/2022 but received the final paycheck in 2023, last payroll of 2022. No hours worked in 2023.

Do you agree for 2023

Need 3% NESH

Need 2023 gateway