If a plan fails an ADP test what are the corrective actions that can take place?

1. I am seeing a lot of answer that state that you have two options if you complete this prior to March 15th (2 1/2 months) of the following year.  1 - you can distribute excess contributions to HCES, or 2 - you can provide a QNEC to NHCES in the amount necessary to raise the ADP to the percentage necessary to pass the test. 

2. Then I am seeing other answers that state if you want to distribute excess contributions you must use the one to one method where you must distribute excess contributions to HCE's and then also contribute a QNEC of that same amount to NHCE's. 

Does the second option only apply if you did not complete either the distribution of excess contributions to HCE's or provide QNEC's to NHCE's prior to March 15th of the following year, or is that paticular corrective action always going to need to include the QNEC in the same amount if you choose to use the distribution of excess contributions method? 

We have a question into Relius asking why the system is making an employee 100% vested when said employee terminated prior to Normal Retirement age.  Employee does not have the required 6 years vesting service to be 100%.  It appears that Relius is only looking at age of the employee and not taking into consideration term date......

However, he is the response we get.

"The participant still has a balance and a forfeiture event has not occurred. So, if they reach retirement age with their balance still in place, they DO become 100% vested as they have satisfied the plan's requirements. That is what the regs say. Unless their document has a provision that excludes terminees who reach retirement age from becoming fully vested, but they should check their document and check with their own experts--then Relius is doing things correctly."

What does a forfeiture even have to do with this?

What regs?

It's a Relius Document that says the employee would need to be employed on or after your Normal Retirement Age.  The employee did not meet employed at Normal Retirement Age.

Am I missing something about a forfeiture event and not being employed at Normal Retirement Age?  This would be new to me if I am.....

Thanks

I believe it was late 2022 that the DOL issued proposed changes to VFCP to allow for a "self correction" option under VFCP.  

Can anyone tell me if that option is available at this time?

Thanks very much.

This is a new one for me.  I have a small size financial employer:  owner and spouse plus another employee.  They also have what he is calling another individual as a "statutory" employee that I honestly have never come across before.  A had to look this up that a statutory employee is an independent contractor with the distinction being the business pays half of SS and Medicare and the individual pays the other half.

If this meets the definition of a statutory employee, then can we not only not provide 401k entry to the individual and do they NOT count against any testing?  I.E., with 2 HCEs and 1 NHCE, am I at 100% for 410b or 50%?

Thank you

I am not a 401k person and not sure how the following should be handled.

Setting up a brand-new plan for a sole-prop for 2023 (will be signed and funded by 4/15/2024). There will be employees hired later this year or next year. So far, only the owner

Q1: Do I need to have EACA provisions (I do not want any in there) even if retro to 2023?

Q2: For any possible new employee who may be eligible for 2024 and/2025, does the plan have to have EACA option?

Q3: For deferral effective date, I think it should be 12/31/2023, latest possible election date, agree?

Thanks

A plan ran APD testing for plan year 2023 and found that the plan would not pass the ADP test. On march 15th 2024 the plan used the leveling calculation method to determine a refund amount. Then the plan made a benefit correction for this amount which corrected the W2 to reflect the amount added back to their taxable wages. The plan then sent a 1099 R with distribution code 8 for just the earnings since the other amount was processed through payroll. 

Should the following have been done to correct the failure instead: 
Prior to March 15th correct the deferrals of HCE's to ensure that the ADP test was passed rather then provide an amount using the leveling method?

If an amount was provided via the leveling method should that amount have been taxed in the year 2024 rather then added back to their 2023 W2? 

A sole proprietor has a small loss on Sch C.  The plan has no required contribution source.  He made a deposit of $7,000 during 2023.  I'm thinking with no compensation coudl he still make a catch-up deferral?  Seems he could since that is allowable over plan limits such as compensation?

Thank you.

110 people have account balances at 12/31/2023.  100 people get a profit sharing contribution after year-end, including 20 who do not have accounts presently so if I could the receivable only participants, there are 130 participants.

Has the DOL gone to trouble of defining what they mean by "account balance" and whether or not it includes receivables?  Obviously it's the difference between an audit and no audit.

I'm hoping someone can confirm (or point out where I'm wrong on) the following:

Small Corp is wholly owned by Joe. 

Big Corp is owned 97% by a 401(a)-qualified plan covering Big Corp's employees. Joe owns the other 3% of Big Corp and is an employee of Big Corp. Joe's Big Corp plan account is allocated 1% of Big Corp stock. 

Small Corp and Big Corp are unrelated in every other way (no services, no options, no family relationships, no possibility of an ASG, management group, etc.).

Under the brother-sister stock exclusion rules, stock of Big Corp that is owned by Big Corp's qualified plan is excluded if five or fewer persons who are individuals, estates, or trusts own 50% or more of the vote/value of Big Corp's stock. The regulations do not require that the five or fewer individuals, estates, or trusts own overlapping interests in both corporations, only that five or fewer individuals, estates, or trusts own at least 50% of the vote/value of the corporation whose stock is potentially excluded. (This is confirmed by Who's the Employer as well.)

Because five or fewer individuals or trusts (Joe and Big Corp's plan trust) own 100% of Big Corp, it seems that the exclusion condition is met. If so, and all Big Corp stock owned by Big Corp's plan is excluded, Joe is deemed to own 100% of Big Corp. Given that Joe owns 100% of Small Corp, that would seem to make Big Corp and Small Corp a brother-sister group.

This outcome seems counterintuitive. 

Am I missing something?

What's the best way to explain why Cash Balance Contributions can exceed the income on a K-1 to an accountant?  We have a group who ultimately would show a very small income on their K-1:

I believe they are contributing $120k into the Cash Balance, while the total income is $132k

The accountant doesn't understand how it's possible and is concerned about a potential audit.  We defined the benefit as a set dollar amount, and the maximum deductible is within the $120k.  Also, it is a 2 person Plan with both participants being owners.  So there is no discrimination testing to worry about.

Thanks in advance!

My husband retired as a NYC teacher with a disability pension 2 years ago  after a brain aneurysm. At that time, he was living with a different woman and when filling out the retirement paperwork, they chose the irrevocable disbursement option for her to get continued payments after his death. They have since broken up and we are now married. He has been told there is no way to change that option or have his pension recalculated so that he may receive the maximum payment. It has been suggested that he hire a lawyer but what kind of paperwork would a lawyer have to file to get this changed? Are there cases in the past of lawyers being successful in facilitating these changes?

For a QDRO distribution to a minor/dependent, the Participant is responsible for paying the taxes on the distribution.  By default, the Plan Administrator will increase the QDRO distribution by 10% as a tax withholding.  However, we also give the Participant the option of foregoing the additional 10% distribution as tax withholding by filling out a Form W-4R, in which case the Participant is responsible for the taxes outside the Plan.

We had a participant request to have the QDRO distribution increased by 25% as a tax withholding.  Is this allowed?

If the plan document allows, are hardship distributions now allowed from a safe harbor match money source in a 401-k plan?

For a plan that sticks with Teachers Insurance and Annuity Association of America, do you like TIAA’s Target Date Plus model portfolios?

Why or why not?

Spouse received longer COBRA coverage period at employee's termination than the employee's 18-month coverage period because of employee's Medicare coverage prior to termination.   Is there any restriction on the covered spouse adding the former employee back to coverage (here just the dental plan) during the next open enrollment.  It seems the spouse (as a qualified beneficiary) must be provided the same election / enrollment rights as an active employee which would permit election of employee + spouse coverage.  Thanks.

Suppose you have a 1 participant DB that started 1/1/2016. This is a plan that actually has always been more than 100% funded.

There are no freeze consequences for the first 5 years of this plan if an AFTAP was not signed.

So that would leave plan years ending 12/31/2016, 17, 18, 19, 20 with no freeze consequences correct? But if an AFTAP was not signed before 10/1/2020, benefit accruals would be frozen starting for plan year 1/1/2021.

This particular plan will have had no signed AFTAP until 9/30/2024 and the plan will be certified at about 115%.

My understanding is that when this AFTAP is certified on 9/30/2024, benefit accruals for 2024 and 2023 will be restored.

Is there any way benefit accruals can be restored for the 2022 and 2021 years as well? Is voluntary correction available or does the participant just lose the 2021 and 2022 year accruals with no possible way to get it back?

Thanks.

For my academic writing, I hope BenefitsLink neighbors will help me with some guesses or observations about what actuaries work on.

How many actuaries work 85% or more of one’s time on defined-benefit pension plans?

How many actuaries work 85% or more of one’s time on individual-account plans?

For actuaries between those outer ranges, what’s the split between db and dc plans?

Of work done for individual-account plans, how much (if any) requires an enrolled actuary’s certificate?

Of work done for individual-account plans, how much (if any) requires math skills beyond those possessed by other educated people?

And although I’m focusing on actuaries in this initial query, I might ask similar questions about people who hold another license or credential.

401(k) plan is closed MEP.  Two employers share common ownership, but not sufficient to be related group. A 401(k) is not a pension plan. I don't see that the Schedule MEP should be filed for a 401(k) plan.  I assume that plan sponsor should attached the same schedule that applied prior to 2023. 

Am I missing something? Thank you for any guidance.         

The participant died with no named beneficiaries.  The participant has 2 surviving family members, son and granddaughter.  The 401K company said that IRS regulations state that grandchildren are not eligible to receive distributions.  They asked for information about the estate with the expectation that the distribution would go to the estate.  After a 7 or 8 month delay the check was distributed to the son.  The son involved a litigation attorney to send a letter requesting the additional funds from the delay and then they responded with the distribution was done incorrectly and that the granddaughter should have received half.  This notification happened 1 and a half years after the check was distributed. From a beneficiary how does this get corrected?

It's a common situation. The employer is merging into another and is required to terminate the Plan. The insurance company requires a "market adustment" for its "stable value" fund. 

The Plan is broad-based and the employer does not want its employees, who thought the money was safe, to lose money because of this "market adjustment."

Is there any guidance that would allow for this, without making this a prohibited transaction or a contribution that needs to be counted for 415 or 401(a)(4) concerns?