We have a client who wants to add a discretionary match to their existing 401(k) plan. They want to make the match on a payroll basis and then do a true up at the end of the year. Do they have to adopt the amendment before the first payroll with the match or can they wait to the end of the year?

I have a question regarding 2 corporations owned by the same person.  Company A is 100% owned by Owner A and sponsors a 401k/PS plan.  Owner A is acquiring a new company B with different employees in the same industry.  Company B does not currently sponsor a pension plan since it is a new company. Is Company B permitted to establish a separate 401k/PS for the benefit of its employees, or must these employees participate in Company A's plan?  Am I correct to assume NDT will include employees from both company's?  Company A has 60 employees and Company B will have 40.  I'm wondering if there is a plan design available to get around the large plan filing requirement.

Hello - a client has a new plan with a short initial plan year in 2022. (200 eligible; 20 participant account balances).  This plan can use the seven months or less rule for the the audit for the short plan year to be deferred until the following plan year.   

Since there are only 20 participant account balances (restaurant group), does this mean the plan does not have to have an audit for 2022 or 2023? 

Thank you for your thoughts and any guidance you may have - not able to locate anything addressing this situation.

A plan is sponsored by a 1-man LLC who's being taxed as a partnership, though the owner receives both SE income and W-2 wages (I've seen a thread on these boards regarding both types of comp being paid from such an LLC, and the consensus seems to have been that, though rare, it is possible.)  Plan Comp is defined as 415 safe harbor comp.  The TPA is asserting that Schedule E income (for the K-1 income he receives) should be included when performing the val, however, we weren't able to find anything in the regs specifically allowing its inclusion - does anyone know if this type of income can be included under the 415 safe harbor definition?  If possible, a cite would be most appreciated.  BTW, the K-1s did not show any Schedule E amounts in boxes 14, 4a, or 4b (they were all zero), and no Schedule C was required to be filed.  Thanks in advance for any assistance offered.

I'm not sure if this is the correct message board but here goes:

Company A buys Company B and each have their own 401k plan.  All Company B employees now participate in Company A;s 401k plan.  No new entrants or contributions to Company B's plan.  They will terminate company B's 401k plan, but have not done so yet.  

Can Company B employees, now working for Company A, take distributions from B's 401k Plan?  Have they had a distributable event?  

Thank you

Hi

Question for 401 gurus.

Non-HCE participant deferred $8,000 on 2022 w-2 (1,000 per paycheck) and terminated after 8 paychecks.

Just found out that they deposited another $1,000 without a paycheck i.e. $9,000 was deposited during 2022.

As only $8,000 was on the w-2, how is this corrected?

Earnings are pennies as all invested in cash.

Thanks

Plan makes a corrective allocation under EPCRS for a missed deferral and missed match in the form of a QNEC to the plan, plus attributable earnings.  The RK is partly responsible for the error and offers to cover the cost of earnings on the QNECs involved.  

Question - Can the RK fund the earnings directly to the Plan or should the RK reimburse the Plan Sponsor/Employer for the earnings amount by other means outside the Plan?  Clearly, a corrective allocation must come from employer non-elective contributions (including forfeiture account if the plan allows "use to reduce" method) but unclear part is whether the earnings attributable to the corrective allocation should also be required to be funded from ONLY employer non-elective contributions (including forfeitures).  Any help is greatly appreciated. Thank you!

From Rev.  Proc. 2021-30, page 31/140:

(4) Principles regarding corrective allocations and corrective distributions.  The following principles apply where an appropriate correction method includes the use of corrective allocations or corrective distributions:  (a) Corrective allocations under a defined contribution plan should be based upon the terms of the plan and other applicable information at the time of the failure (including the compensation that would have been used under the plan for the period with respect to which a corrective allocation is being made) and should be adjusted for Earnings and forfeitures that would have been allocated to the participant's account if the failure had not occurred.  However, a corrective allocation is not required to be adjusted for losses.  Accordingly, corrective allocations must include gains and may be adjusted for losses.  For additional information, see Appendix B, section 3, Earnings Adjustment Methods and Examples.  (b) A corrective allocation to a participant's account because of a failure to make a required allocation in a prior limitation year is not considered an annual addition with respect to the participant for the limitation year in which the correction is made, but is considered an annual addition for the limitation year to which the corrective allocation relates.  However, the normal rules of § 404, regarding deductions, apply.  (c) Corrective allocations should come only from employer nonelective contributions (including forfeitures if the plan permits their use to reduce employer contributions).  For purpose of correcting a failed ADP, actual contribution percentage (“ACP”), or multiple use test, any amounts used to fund qualified nonelective contributions (“QNECs”) must satisfy the definition of QNEC in §1.401(k)-6.

 Page 26/140:

.04 Earnings.  The term “Earnings” refers to the adjustment of a principal amount to reflect subsequent investment gains and losses, unless otherwise provided in a specific section of this revenue procedure.

So some advise eliminating a waiting period or making it very short for part-time deferral-only employees.  In the past if the plan was top-heavy they had to get 3%.  90% of our plans are top-heavy.  And I know SECURE 2.0 eliminates top-heavy for those otherwise excludable.  

So if a plan allows all participants entry into the plan say after 12-month wait and entry date, those with a Year of Service (1000 hours) will get a full employer contribution and those without will not - they can defer only. This will satisfy the LTPT requirement.  There is no testing on the deferral-only group, and no top-heavy required contribution.  This seems pretty easy except it's more enrollment for a plan sponsor.  I believe our clients generally will still want the 12-month waiting period.

Does this sound reasonable?

Also, if it is a DC/DB combo, are there any consequences?  I would think not.

We have a client (individual medical practice) that is bringing in a group of 6 employees (5 employees plus 1 doctor) from a hospital.  Of course the doctor would like to immediately participate in the medical group plan.   We've used the predecessor service plan feature when a practice has been acquired.  But I believe I read to use that feature there needs to be some business continuity relating to the group coming over.

I always appreciate your comments.  

Tom

Participant has a vested balance of $75,000 including an outstanding loan balance of $15,000.  The highest outstanding loan balance in the last 12 months is $35,000. If the loan limit is 50% of the vested balance not to exceed $50,000 reduced by the highest outstanding loan balance, what is the maximum amount available for loan?    Fifty percent of the vested balance is $37,500; $15,000 is outstanding leaving $22,500 available for a loan.  But $50,000 less $35,000 is $15,000; $15,000 is less than $22,500, thus $15,000 is the maximum amount available for loan.  Good so far?

So the Participant takes a loan for $15,000 and now has total outstanding loans of $30,000.  Does it not stand to reason that since loans were maxed out that the Participant now has $0 available to take another loan?  Let's do the math again.  Participant has a vested balance of $75,000 including outstanding loans of $30,000.  The highest outstanding loan balance in the last 12 months remains at $35,000.  Fifty percent of the vested balance is $37,500; $30,000 is outstanding leaving $7,500 available for a loan.  The $50,000 limit less $35,000 is $15,000.  Now $7,500 is less than $15,000, thus, what do you know, now we have $7,500 available for a new loan!

So Participant is told that he is maxing out his loans on one day, only to find more available for a loan after taking the "maximum" loan the day before.

I've been doing this a long time (perhaps too long!) and never came across this before.  Do I have it right?  Missing anything?

A provider initiated the IDR process by notifying a TPA and not the plan or issuer of the dispute. The TPA never forwarded the notice. The plan only learned about the determination -- which was issued with only input from the provider -- a year later. Is it a valid determination?

Other than SEPs (Medicaid/Chip), do you allow any PECs for adding a newborn beyond 30 days?  I haven't gotten this question in a while but we have a plan with two requests - one parent was admitted to an inpatient mental health facility right after the birth and one reportedly couldn't access the enrollment system (yet to be verified).

We have a client with a safe harbor and cross tested profit sharing plan. They opted to maximize contributions for the owners. 5500 was filed and participant statements delivered. Now they do not have the money to fund the plan. Can they amend the profit sharing contribution and 5500 by still giving all the NHCE's the same contribution, but reducing the owners profit sharing to zero?

Anyone else have clients getting extension letters from the IRS saying their 12/31/2022 PYE are 6/30/2023 PYE and their 5500 is extended to April? 

We have seen a few.

I am trying to understand if contributions (Pretax, Roth, and after-tax, also known as Mega Backdoor Roth) to a solo 401k can be made before the tax deadline and not strictly by the end of the year for a Sole Proprietorship.

I was reading that contributions can be made before the business tax deadline, except for the Employee contribution part, which should be made before the end of the year:

While employee and employer contributions may be extended until the company tax return deadline, you will typically need to file a W-2 for your wages (e.g. an S-Corporation) by January 31st, 2023. The W-2 will include your wage income and any deduction for employee retirement plan contributions will be reduced on the W-2 in box 12. As a result, you should make your employee contributions (up to $20,500 for 2022) by January 31st, 2023 or you should at least determine the amount you plan to contribute so that you can file an accurate W-2 by January 31st, 2023. If you don’t have all or a portion of the funds you plan to contribute available by the time your W-2 is due, you can set the amount you plan to contribute to the 401(k) as an employee contribution, and will then need to make a said contribution by the tax return deadline (including extensions).

I am a bit confused about the W2 part. As a Sole Proprietorship, I do not have a W2 form (I give my customers a W9 form when making contract work). Does it mean I can make the Employee contribution part before the tax deadline?

Also, can the Mega Backdoor Roth be done before the tax deadline as well?

We use Relius ASP and no one is able to use the file transfer tool to port files between the Relius Desktop and our local desktops.  Anypne having the same issue? Saturday October 7th..

I have a plan that was audit level in 2021.  They are current at 101 participants.  Two participants terminated in 2021  has a zero balance on 1/1/2022, but received lost earnings within the year.  Datair is counting them in the 2022 beginning participant count.  Since they didn't have a beginning balance, should they considered a participant for the Form 5500 count?

We have a defined benefit plan that is seriously underfunded, with a required contribution needed for 2022.  Benefit accruals have since been, prospectively, frozen with appropriate advance notices.   (This was actually done several years ago.)  I also note that the plan is NOT covered by PBGC.  One thing that the Client is being advised to do is to have the Plan be deemed terminated retroactively.  For example, amend the plan NOW to say the plan was deemed terminated as of 12/31/2021.  Is this allowed?  Thank you very much for your replies, especially in light of 10/15!

Hello, 

We are trying to utilize the online capability of having participants requests Hardships and In-Service Distributions as well as Loans directly through the website.  Is someone able to point us in the right direction on the procedures Relius provides in order to get this setup accurately with all the specific distribution/loan provisions that a plan would have? 

Thanks for any assistance that can be provided. 

A brand new DB plan effective 1/1/22 was adopted in August, 2023. May the plan's formula be amended before 10/15/23 to increase benefits effective 1/1/22? The plan sponsors 2022 tax return has an extension to 10/16/2023.

Thank you.