Hi

Here is another new one for me.

Back in 2020, CPA asked me to run a proposal for a DB plan. Did projections for 2020 and 2021, big numbers, provided consulting and also all the mandatory deadlines. Never heard again from the CPA and the prospective client.

Last week I got a note from the CPA saying the client did not make any money in 2022, is $0 contribution ok? 

I went "huh???"

Apparently, plan sponsor (one lifer) made deposits into an account (do not even know what kind as there is no plan document) for 2020 and 2021. So

• No document
• No valuation
• No signed SB
• No 5500 for 2020 and 2021 (EZ - easy fix)

Other than getting an ERISA attorney involved, has anyone dealt with a situation like this and if yes, what steps were taken?

Yucks

Plan sponsor opened a 401(k) plan effective March 1, 2022 but has been in operation for some years.  It is top heavy as of 12/31/2022 and so the first/short 2022 plan year is top heavy.  I assume the 3% top heavy minimum is required only on pay from March 1 through December 31?  

For 401(a) testing purposes would Company A which is owned 50/50 by husband and wife, and Company B owned 50/50 by their children be considered a brother sister company part of a controlled group? It's clear that if these individuals were unrelated the answer would be no because 5 or fewer individuals do not have more than 50% common ownership. So for example the children have 0% ownership in Company A and the parents have 0% ownership in Company B. However the Section 318 family attribution rules state that husband and wife are deemed to own each others shares and parent and adult children similarly are deemed to own each others shares. Further Reg Section 1.414(c)-2(c)(2) states that if an individual is in effective control of a company, (greater than 50%) then he or she is deemed to own their parents or children's interest in that company. However, I interpret Section 318 and the 414 regs to only apply to family attribution within a single company, not among 2 companies. So even though the husband and wife are deemed to each have 100% effective control of Company A, this shouldn't mean that the parents are deemed to effectively own their children's 50/50 ownership interest in Company B and vice versa? If this were correct then Company A and B would be deemed to be a brother sister controlled group of companies which I don't agree with especially since each owner does not have a greater than 50% interest.. Any thoughts or experience with this issue?

Update - the information I was given that led to this post was mostly all incorrect, so I'm deleting it so people don't waste there time. My apologies.

On 1/1/2023 Company B merged into Company A's 401(k) Plan ( controlled group).

Prior to the merger Company B had a match tied to a vesting schedule.

Company A maintains a Safe Harbor 401(k). 

At the time of the merger there were  funds in  Company B's forfeiture account.  Company A needs to fund a  QNEC and Match for participants. Any issue with using the forfeitures that came from Company B to fund this contribution.

Once the plans merged, there is no distinction as to where which company generated the forfeiture, correct?   A forfeiture is a forfeiture and can be used to offset, SH match, pay admin expenses, or used to fund QNEC and missed match

We use ASC for our DC/CB testing (including 401a26). We have some plans where in the CB plan, the "staff" get  the minimum amount possible. Just enough to satisfy the meaningful benefit (401a26 test).  There has been some discussion within our actuaries that the meaningful benefit in ASC (typically calculated at .5%) isn't really enough. Granted the .5% meaningful benefit isn't set in stone law and instead people point to the infamous Schultz memo. I am curious if others use ASC's calculation of the meaningful benefit or are uncomfortable with the value being presented out of ASC? Hope that makes sense.

I have a client who sponsors two plans, a calendar year 401(k) plan, and a profit-sharing plan with a November 30 plan year end (the latter is paired with a cash balance plan).

Do I determine highly compensated employees for both plans with respect to the look back year that corresponds to their plan year? It just seems odd to have, perhaps, two different groups of highly compensated employees.

Assume a 401k plan currently allows pretax, Roth and catch up deferrals.

In theory, can a 401k plan allow pre tax deferrals, Roth deferrals, and only Roth catch up deferrals for all employees regardless of pay and SECURE 2.0? (Ignore document restraints for this question and ignore that catch ups were accidently deleted)

My answer is 'no' based on the following:

414v allows for catch ups, that section defines “deferrals” under 402g(3), which defines deferrals under section 401k, which says a plan cannot only allow Roth deferrals (1.401(k)-1(f)(1)(i)). Since a catch up is a deferral, I am not sure how a plan could only allow catch ups as Roth.

Thoughts? 

Thank you

I have a plan where the plan sponsor mistakenly submitted census' for the plan that included some leased employees despite being excluded plan document. That caused safe harbor non-elective and profit sharing contributions to be made on their behalf for several years.  Now that the plan sponsor has realized the mistake they want to move these employees out of the plan.  I assume that we cannot forfeit the balances like the plan sponsor wants.  Any idea on the correct way to handle this?

For the CCYLE 3 Restatements, we went from FIS/Relius Volume Submitter to ASC (non-standardized Adoption Agreement). While the Relius document had default language that a "discretionary" Safe Harbor Non-Elective could be contributed to HCE's, the ASC Adoption Agreement required a special check off that was missed for the 12/31/2022 Plan Year.

Is a retroactive Amendment permitted to add HCE's as eligible for the 2022 Safe Harbor contribution?

Working on a plan where the owners and their spouses in a corporation had no compensation for 2022. Do I still include them in my testing? This is the first time working on this plan but I see that they haven't taken any compensation for a few years now. One year the prior TPA included them and the next year they were excluded. Not sure why hence my asking this question.

I know the gateway for the combo plans is typically 7.5% (which can be split between 3% SH + 4.5% PS).  What happens if it's a Safe Harbor Match?  What type of Profit Sharing contribution do we have to include, because we're running into the 6% deductible contribution going over 6% to the eligible employees (less for the HCE)

Would SECURE Sec 301 apply if the overpayment was to an HCE?  Say an employer miscalculates an HCEs match and prior to discovering the error the HCE has terminated and already taken a distribution.  ACP passes so no corrective distributions were due.  Does the fact that the HCE is the only overpayment negate Sec 301, or can the employer allow the HCE to keep the overage assuming no other participants are affected?

Thank you.

Hi - I am speaking with someone who is hurting from having been taxed on a deemed distribution due to failure to an an installment by the end of the cure period. I don't think it can be corrected because payment was made after the cure period.  However, I think I can offer him some consolation by suggesting he repay the loan and make a Roth Conversion of the repaid balance.  There won't be tax on the conversion because he has "basis" in the funds (i.e., the money has already been taxed).  I am concerned however about whether there is a restriction against converting this type of after-tax money.  I can't think of a reason, but I am paranoid. (After all, I work in the pension industry.) 

The literature only speaks of tax-free conversion of  'after-tax contributions'.  Repaid deemed loans are after tax,  but they have a kind of moral taint for failure to repay a loan.  Does anyone think that this type of after-tax money cannot be converted to Roth?  Assume that payment was restored to original sources (e.g., Profit Sharing, Pre Tax Elective Deferrals, Rollover account), and assume the plan allows conversion of vested funds held in any account.  Any problems?

Thanks

An employer hires an employee in 2021 and pays a $10,000 signing bonus.  Two months after beginning employment, Employee enters 401(k) Plan.  In 2022, Employee terminates service and, under terms of employment contract, pays back sign on bonus by issuing a personal check in 2022.

Does this reduce that employees compensation in 2022 for purposes of Testing, if using the definition of Compensation under 414(s)?  I am inclined to say no, as you simply look at what the Employer paid the Employee during 2022.  Does this require new testing for 2021?

Small company has a 401k plan, 3% SHNE, pretty straightforward.  The company is in the construction business and often works on public projects.  The Department of Labor audited a job they had completed about 4 years ago and determined that the company had applied state-level prevailing wage parameters, but apparently there were federal monies included in the project, and as a result, the company should have used federal prevailing wage parameters.  The result is that the company will have to pay a few people who worked on that job some restitution, and it's required to be paid via W2 in the current year.  Most of these people no longer work for the company, though some were participants in the plan previously.  The company does have a 1-year break in service provision, but if those participants are excluded, the plan fails the 410b test in the current year.  So, the question is, how should the company should treat the SHNE contributions for these participants.  Amend the plan to include them in this year's SHNE?  Should they receive lost earnings going back to when the SHNE would have been paid had the earnings fallen in the year in which the original job occurred and thus SHNE would have been paid?  Any insight would be helpful.  Thank you!

I'm finding vague references to this and looking for guidance.  In-plan Roth conversions are allowed in the plan, but I've never had a participant ask me if they can convert their pre-tax Safe Harbor Match to Roth.  Anyone have any insight on this?  Thanks in advance!

Hi

Here is a new one for me.

401k plan with 3% NESH and PS provisions so no ADP testing required. This is combined with CB plan and tested together. (I only handle CB plus testing)

Just got the info for 2022.

HCE/owner and spouse, both exceeded 402(g) limits (changed payroll companies in mid-year and they did not pay attention to the deferrals). Refunding prior to 4/15/2023.

If ADP tested, the full amount would have been included, only for HCE's. Do not have any issues with the NHCE's.

How for ABPT? Based on 2022 limits (20,500) or full incorrect deferral (30,000)? Assume under age 50.

Thank you.

Client pays for LTD benefits to its employees by paying insurance premiums every month.  They are allowed to elect to treat the employer premiums as taxable so that if they were ever disabled their benefit would be tax free (at least I believe that is the arrangement).

In any event, the Plan uses W-2 wages and this election increases Box 1 federal wages on W-2.  So this election increases their 415 wages, correct?  Yes it would be a taxable fringe benefit, but curious if others agree it is part of 415 comp.

Since terminating plans are forced to amend for compliance even though "regular" plans have a greatly extended remedial amendment compliance period, seems like this may be a challenge. Coming up with a comprehensive plan termination amendment is quite a tough assignment. Any thoughts about how reasonable the IRS may be about a "good faith" plan termination SECURE 2.0 Amendment? I'd like to think that any "reasonable" attempt at such an amendment would be a case of, "Pass, Friend" without any minute scrutiny for perfection.