OK, I researched for a long time before posting this question.  We have a client that has company stock (NYSE traded) as an investment option in their 401(k) plan.  The plan also allows participants to invest all money types, including Roth contributions, in the stock fund.  Further, the plan gives participants the option to either reinvest dividends or pass them through.  The question is if a participant invests their Roth money source in company stock and elects pass through of dividends, are the dividends taxable or tax exempt?  Thanks!

Non safe-harbor 401(k) plan (integrated discretionary PS plan design) has become top heavy.

The key employees defer > 3% 401k. (great NHCE participation so they never fail and thus no safe harbor provision)

If I recall correctly, even if they do not make a nonelective PS contribution, they still need to contribute the 3% top heavy for non-key (as indicated in adoption agreement) just because of the key ee 401k contribs?

We administer a 401(k) Plan with a safe harbor match.

Turns out the employer allowed an employee who was not eligible, to make salary deferral contributions.

Generally, this can be self corrected by having the plan execute a corrective amendment that would allow the ineligible participant to have funded salary deferral contributions. Since the plan does have a safe harbor match, must a safe harbor match be provided to this ineligible employee?

Thanks.

401l(h) accounts can add up to 25% tax deductible contributions to a pension plan.  Are 401 (h) accounts which provide incidental post retirement medical benefits appropriate for small Cash Balance and Defined Benefit plans, where all the participants take lump sum distributions or rollovers on retirement or termination.  Suppose an employer has 3 owners and 10 non-key employees.   If one of the non-key employees retires and distributes or rolls over their full lump sum pension amount, are they still eligible thereafter to benefit from post retirement medical expenses, or must they be receiving a monthly pension from the plan to be eligible for post retirement medical expenses.   Similarly, suppose an employee terminates prior to retirement and takes a full distribution at termination, and later reaches the plan's retirement age while the plan is still inexistence.   Are they then eligible for post retirement medical benefits.   If a key employee is past the plan's retirement age, but still an active participant, can they start to received post retirement medical benefits.  

What actuarial requirements are needed for a pension plan with a 401 (h) account.  Is anyone actively administrating plans with 401 (h) accounts for many of their clients.    

Two cannibals are eating a clown.  One says to the other: "Does this taste funny to you?"

I've had related questions in the recent past and so thank you for past comments.  But I'd like to make sure I put the whole picture out here.  

Corporation is 100% owned by an ESOP.  Corporation sponsors a 401(k) plan.  There are 5 corporate officers.  These 5 plus an additional 10 constitute the ESOP Board of Directors.  All 15 Board members are 401(k) plan participants, not all have balances.  The 401(k) plan is a deferral-only plan with about 250 participants.

So the question is who is a key employee?   Only 2 of the corporate officers have wages of $200,000.  None of the other Board members has wages of $200,000.  No one is a >1% or >5% owner of the corporation since it is 100% owned by the ESOP participants.  I see past comments that plan balances in an ESOP are not treated as owned by the individual but by the trust.  Even if I treat all ESOP Board members as key employees, the plan is far below 60% but obviously I have to get this right. 

And as for the ADP, we are just looking at compensation for 2021 in the 2022 HCE determination process.  There have not been individual owners for about 5 years.

Thank you for comments - they are greatly appreciated as top heavy is critical and can be very ugly - 3% for all non-key.  Tom

Group:

Anyone have a good resource they use that shows to side-by-side comparison with SAR's, Phantom stock other RSO's and non-qualified executive compensation packages that will include tax consequences for employees and employers, limitations if any, along with necessary documentation (plan documents, corporate resolutions other

documents?)?

Or a company that can assist in creating the above.

Thank you in advance.

Bob the doctor has a plan.  He and his wife are divorcing.  She gets a payout ordered by a QDRO.  Can her payout be rolled into her own plan? (she sponsors a single member plan of her own).

Thanks

Hi

A client who uses their DC plan as a QRP made a big booboo last year which I just found out.

For 2021, they used 65k of the QRP as mandated (1/7th) and allocated from the suspense account to the individual account in 2022. No problem for 2021.

However, unbeknownst to me, later in 2022, the client deposited 60k in their account (owner only) by mistake, it was not intended as they are fully aware of the QRP requirements.

For 2022, according to the suspense account balance and 1/6th rule, they need to use 60k of the QRP.

Given that this is 3 person pension plan, is there a way to correct this i.e. client refunds the deposit made in error during 2022 with interest adjustment back to the biz account? I do not see how but......

Otherwise, as the owner is almost at 415c limit, the 60k pretty much will have to be allocated to the 2 rank&file employees (both make 50k in salary and unfortunately one of them is the spouse of the owner aka HCE).

I have never seen this before in all my dealings with QRP and wanted to ask if there is a way to correct this, something I may have missed?

Thank you

Any opinions as to whether the SECURE 2.0 Section 305 will prompt the IRS to allow self-correction of scrivener errors?

I'm guessing not, but it sure would be nice. For example (just saw this recently) safe harbor 3% nonelective, with an additional PS discretionary, was amended in 2021, mid year, to exclude a category of compensation for PS allocation purposes. Since 1,000 hour/last day for the PS, no problem. Problem is that on the AA amendment, wrong box was checked - instead of checking the box to carve this out to exclude for PS purposes only for 2021, it was checked to exclude for all purposes. Clearly unintended, client made the appropriate safe harbor contribution for 2021, etc.

Now, technically this amendment appears to violate 1.401(k)-3(g), and would cause the plan to require ADP testing for 2021, etc. - a pretty harsh outcome. So a VCP filing appears to be required to correct this. Allowing as a Scrivener error would be much nicer.

To be fair, I can see why the IRS generally is leery about allowing self correction for Scrivener error, as it might allow some pretty creative "revisionist history" on plans which isn't justified. So I'm guessing this won't change. 

Opinions? 

I have had an inquiry from an attorney representing the future Payee of a TSP account.  They have in hand the value of the Participant's TSP account funds at the time of marriage (non-marital), and need to determine the growth of those non-marital fund amounts from the date of marriage to the date of the divorce.  I showed them how to use the share price history website to do that to show the growth in the share price between  the two relevant dates.   

But the attorney for the Participant will not accept the TSP website data as authentic. https://www.tsp.gov/share-price-history/  and it looks like the matter will have to be decided by the court.   

Is there a US Code or CFR regulation that makes the website numbers on a Federal agency website presumptively authentic so that the court can take judicial notice?  In this case of would be the Federal Retirement Thrift Investment Board and the TSP.  
  
Or is there some way to get a "business record" certification of the share price history between two dates?  

Thanks, 

David
 

A Participant (Owner) in a 401k PS plan died in July 2022 and his benefit was rolled over to an IRA QTIP Trust for his Spouse in October 2022.  He would have been 72 in September 2022 and his RBD would have been 04/01/2023 had he not passed away.  Now that his benefit was rolled over to an IRA QTIP Trust, is the RMD for 2023 based on the deceased Participant's DOB or the Spouse's DOB?  Is the RMD to be distributed based on the deceased Participant's RMD age or the Spouse's RMD age?

An employer offers a couple of medical benefits (medical travel, infertility) to the extent not otherwise covered by insurance and which are completely self-funded, i.e. paid entirely out of general funds and not backed up by stop-loss. There is no employee pay portion and there is no enrollment, all employees are covered by virtue of being an employee.

COBRA seems to apply - the fundamental question is, what is the COBRA premium, if any, and can the employer require the employee to make an affirmative election for continuation coverage in the absence of any "premium" per se or would the employer have to offer it to all separated employees since there is no premium?

The medical travel benefit is entirely new, so there's no experiential cost to the employer as of yet, but the infertility benefit has been in place for a number of years, so could you hack up the claims experience of that benefit to arrive at a "premium?"

Since the employer can charge "up to" 102% of the premium cost, if it's too difficult to arrive at what the premium would be, could the employer simply decide that it will charge zero, but the employee must still make an affirmative election to continue coverage?

I have a client that wants to declare a profit sharing allocation.  The Document currently has a last day/1000 hours.  However, they want to have the allocation condition be "you must be an employee on the day it is declared."   

The plans sponsor declared the PS contribution effective 2/13/2023 based on 2022 plan year compensation.  Would this be permissible?  Would the contribution be a 2022 or 2023 plan year contribution?

I've been provided names of corporate officers and those who are on the ESOP Board of Directors.  The 5 corporate officers are also on the ESOP board of directors plus the ESOP board has another 9 individuals - so potentially 14 "officers."  I realize to be a key employee they must have wages of $200,000 for 2022.  That will eliminate most of them.  I assume both corporate officers and ESOP directors are considered "officers" for top heavy purposes?  

Top heavy testing for large clients like this (350 employees) who make no employer contribution is always very concerning.  They've been a long way from being top heavy but we certainly want to build in the correct data in this determination.  I'd normally want to push this client off to another TPA but they came from one of our best referral sources.

Thank you for your comments.

Wanted to ask if anyone has any experience with clawbacks of sign on bonuses when the plan has immediate entry and the employee defers from this compensation but it is clawed back at a later date.  My understanding is that the impact on employer contributions depends on the definition of compensation in the plan document (one of the safe harbors).  It is also my understanding that the 401(k) deferrals, once made are eligible deferrals at the time of deposit so that the clawback would not impact the amount of 401(k) deferrals in the employee's account.  The employer contribution, and any adjustment, will depend on whether the clawback occurs in the same tax year or crosses over tax years. 

Does anyone have a good reference point or other items to consider?  Noting here that my recommendation would be to not have these included in eligible compensation to prevent any impact on the 401(k) plan, but many large companies have immediate entry these days.  Just looking for others experience.  TYIA!

Probably a simple question - I don't see where there is family attribution required for officers, only for >5% owners.  I need to be 100% sure since top heavy status can be a VERY ugly surprise to a plan sponsor with many employees.

Thank you

Hello, have a unique situation summarized below and curious how to proceed. Any information would be appreciated. 

Plan had 3 employees (2 owners and a non-HCE). The only contributions allow to the plan are a Profit Sharing allocation in which all receive an equal proportion to compensation. This contributions is on a 6 year graded vesting schedule. They have a 1 year of service required of 1,000 hours to which a new employee met. They became eligible based on reaching 1,000 using their anniversary date as their determination period.

The employee did not reach 1,000 in a calendar year and will not meet this requirement at any point. The concern is putting profit sharing money annually when this employee will never meet any level of vesting service would cause frustration with the employee as they will receive a profit share and statement annually while continually having 0% vesting. The client and participant are curious if she is able to put something in writing to opt out or waive the rights to a profit share to avoid this.

Our concern is that since this employee reached eligibility, the plan would fail coverage testing and require a corrective contribution. If the employee has opted out of the plan entirely, would they be owed a QNEC for a failed coverage test or would the opt out from the plan apply?

A brand new plan for the 2022 plan year has a safe harbor match provision. The plan document states that safe harbor contributions are determined at the end of the plan year. However, there was only 1 payroll in 2022 that was in effect. Plan sponsor provided safe harbor match for that one payroll. Is the plan sponsor required to true-up the safe harbor match for the entire year and if their original intention was to fund it on a per payroll basis, can this be corrected under SCP? 

If a charity’s § 403(b) plan provides a qualified automatic contribution arrangement with auto-escalation, to get coverage and nondiscrimination safe harbors:

how much must the employer provide as a matching contribution?

how much must the employer provide as a nonelective contribution?