Damn good question from someone in the office:

Plan has no conditions  but they exclude people from getting an allocation if they have less than 1,000 hours or term before last day (not top-heavy).  But, the plan is now below 70% for coverage.  I realize there are Terms with Breaks because last day/1,000 hours is not the "sole" reason they're not benefitting.  But can I use the Average Benefits Test based on the conclusion that excluding people who have less than 1,000 hours or are termed is a reasonable business classification?

Follow-up: Does the answer change if I bring one of them in to pass a failed rate group test?

I'm sure this has been asked a lot in the past and so thank you for your patience.  And I realize SECURE 2.0 may have changed this possibly. 

Have a client who hasn't deposited for 4 months in 2022. Dentist bought a practice and didn't know they or their new payroll company needed to initiate payment.  The amount for the 4 months is probably less than $5,000.  It's being deposited now and I know to report on the 5500 and file Form 5330.  My question is the earnings calculation.  This will be self-corrected.  Can I use the DOL earnings calculator?  It is easy to use and takes out any ambiguity.  I read different things about whether can be used or not.  I'm pretty sure the DOL earnings will be higher than the plan actual earnings for this period (which could even be a loss.)

Thank you.

In a plan merger, are the balances of prior terminees also transferred into the new 401k plan?  These terminees can take their money out of the original plan at any time. but if they do not and their balance is over $5,000, they have to be rolled into the new plan, is that correct?

Thank you

How are TPAs handling on-demand/early-access pay with regard to plan compensation?  Is it treated like a traditional payday loan where the employer isn't involved and ignored for plan purposes? Or counted as compensation when the employee has constructive receipt?  I want to think it's ignored, but when the program itself is an employer benefit, it feels a little different somehow.    

A participant takes an RMD in 2022 and dies later that year.  The spousal beneficiary is now (in 2023) doing a rollover of the benefit into a regular IRA.  Does a 2023 RMD need to be distributed to the spouse prior to the rollover?

Er terminates plan 12/31/21.

All assets distributed by 3/31/22

Company wants to start new plan as of 4/1/23 for 401(k).

• Question 1: is there an issue with adopting it prior to 4/1/23 (ie within 12 months of distribution of assets in prior plan, even though plan won't be effective until after 12 months)

Alternatively Company wants to adopt the plan after 3/31/23, but make PS effective 1/1/23

• Question 2: Being adopted after 12 months, then calculating back to 1/1 - does that violate the successor plan rule?

Hi

A DB Plan on 01/01/2022 had a prepaid (FASB) of $567,000. The plan terminated in November 2022 and the assets were rolled over into IRAs in November 22. At 12 31 22 (and forward) what happens to the prepaid? Thank you very much.

Fun stuff here, doing a DB/DC combo.  One terminated NHCE is the only statutory exclusion.  But she did get to 1000 hours and is getting a contribution credit, but not enough to cross the theoretical 0.5% threshold.

My hope was that I could leave her out of the "main test" so that she gets a 5% top heavy minimum only under the DC and not the normal gateway 6.5% rate.

Problem is, if I disaggregate the statutory exclusions, then I've got a "plan" with just the one NHCE who doesn't "benefit".

And the Regulation 1.401(a)(26)-1(b)(1) excludes NHCE-only plans from 401a26 if

(a) not top heavy

(b) no HCEs

(c) not aggregated for 410b or 401a4.

The conclusion I'm drawing here is that I can't wait for the disaggregated top heavy testing under SECURE 2.0.

Because I'm thinking either (a) increase the CB credit up to 0.5%, or (b) just test her with the non-excludables and give her the higher gateway.  And since (b) is cheaper than (a), I feel like I wasted an hour trying to carve her out in the first place.

Any other thoughts?

--bri

Hello all,

We outsource our benefits administration and use Workday Payroll. Currently we have to audit total FSA and HSA contributions at year end to ensure no one has gone over their election or IRS limit. I asked Payroll why we wouldn't have at least the IRS limits programmed on the Workday Payroll side, and the response was that Workday can only handle the 401(K) IRS limits. Does anyone have an experience with this? In my past experience with other payroll systems, the outsourced provider would send goal amounts with the FSA deductions that would be stored on the payroll side to ensure no one goes over that limit by year's end. Looking for any insights for those who may use an outside benefit administration vendor and Workday payroll. Thank you!

Hello all,

I started a new job, and my team has told me that we failed section 129 non-discrimination test last year and made the appropriate adjustments prior to the end of the plan year. But they have told me that the W-2s still reflected the full election/contribution amount and not adjusted for the amounts that were considered taxable therefore added as imputed income. I just spoke Payroll, and they said this is how it should be done. But I have also read that only the amount considered pre-tax (tax favored) should be reported on the W-2 box 10. Does anyone know what is correct or is either fine as long as the imputed income is reflected correctly for the plan year?

Thank you!

I know that ROBS arrangements aren't really all that well thought of around here, and there does seem to be some sleight of hand involved in how the actual plan can be initially started (business valuation, for example), and there are certainly enough on-going potential PT and other (5500, ERISA bond, etc.) compliance issues that it could be problematic,  but it _may_ be that I am actually in a position where a ROBS might make sense.

One issue, though, is that some promoters, such as mysolo401k, claim that you cannot use Roth 401K funds for the initial investment, and other promoters, such as guidant, claim (obviously correctly because of well-known rollover rules) that you can't start with a Roth IRA, but also claim that a Roth 401K account would work as a funding source.

Several articles about the process also parrot mysolo401k's claim.  I'm trying to figure out if they really found a legal issue with buying QES with 401K Roth account funds, or they just don't want to go to the time and expense of modifying their plan documents.

For me, it certainly wouldn't make sense to do this if I couldn't use 401K Roth account funds, because, as some clever commenter (sorry, forgot who!) around here wrote: "Congratulations!  You just converted capital gains into ordinary income!"

But I'm 62, I have skills that I could utilize on my own (no other employees) without any help to bring in some reasonably significant income with very little capital investment, I have savings that I can live off of (including some non-Roth IRAs I could be drawing down if I am showing very little W2 income from a business), and I have a well seasoned Roth IRA.

So, in theory, it seems that if the ROBS 401K plan documents allow partial in-service distributions, I could continuously roll over corporate dividends received by the 401K into the Roth IRA, where they could be reinvested at a brokerage and/or removed and spent at will.  And if the 401K plan documents allow distribution of plan assets without conversion to cash, I could, after 5 years, distribute the company stock to myself with no tax consequences, which would simplify the chicken and egg problem of needing correct valuations to sell the business out of the 401K plan, because, at that point, it would simply be like a zillion other solo 401K plans.

At current corporate tax rates (and Texas's low franchise tax rate), with no further taxation on the dividends, that seems like a pretty good deal.  There are even some other tax planning opportunities, due to the greenfield nature of starting something up.  For example, if valuation is set to par for injected cash, a contemporaneous co-investment could be immediately gifted to a trust, or directly to grandchildren, at well below any valuation that would trigger gift taxes or GST.

But of course, if an idea seems too good to be true, that means it's time to invite others to throw rocks at it.

So thanks in advance for any boulders you can provide.

Was hoping anyone has experienced this before and any thoughts. Am trying to think through all possibilities and with compliance testing for the HCE and NCHE employees also rehired participants. The thought is to merge plans so not one is terminated. 

Vesting Schedule

Plan A - For hires on/after 1/1/2017, 25% after 2 years; 50% after 3 years; 75% after 4 years; 100% for 5 or more years, 100% vested if employed on 12/31/2016 

Plan B - 3-year cliff; 6-year graded vesting for pre amendment of 12/31/2016

Possible Vesting but what happens to rehired participants and compliance testing? are all of these possibilities?

1. Apply the legacy vesting schedules to amounts accrued through 12/31/23 and a new schedule to amounts accrued on/after 1/1/2024.
2. Vest all participants immediately 
3. Vest 25% after 1 year, 50% after 2 years, 100% after 3 years 
4. Changing everyone to 100% after 2 years 
5. Vest everyone 25% after 2 years, 100% after 3 years. 

We have a client that is setting up a deferred compensation arrangement and wants to exclude from the Change in Control benefit any transactions between family since it is a closely held company. I think for 409A purposes this is not problematic because they only further restrict the 409A-acceptable definition of a CIC, rather than expand it.

It seems to me that, within a family, if a person is treated as owning any interest owned by the person’s spouse, children, grandchildren or parents, then (for example) a child who purchases stock from his parent would not trigger a Change in Control, because the child is already deemed to own the interest under the 318 attribution rules. I cannot find any guidance that explicitly states that, though. Has anyone dug into how this works?

Thank you!

Based on the language of SECURE 2.0, it appears that new distributions for those terminally ill can only be made when the person is otherwise eligible for a distribution. But other new distributions (e.g., emergencies and domestic abuse) create new distributable events. In either case, however, allowing any of these new distributions is optional.

Do you all agree, or do you read the law differently?

Hello All-

Our firm is considering changing methods from Accrual to Cash Basis for 5500 and year-end valuation reporting.  Is there anyone out there with experience who can provide any tips on how best to do this?  I have worked on a cash basis previously, but would like to explore any pitfalls of making the switch from accrual to cash. Trying to make the transition go as smoothly as possible. Any advice is greatly appreciated! 

Thank you!

Hello,

We have a participant in a fully insured plan that is past NRA and would like to take a partial distribution. They have 4 annuity contracts in the plan and want to distribute 2 of them to an outside account and continue to pay premiums on the other 2.  I realize we have to amend the formula to make this work, and there are only owners in the plan, so that part should be ok.  I'm wondering if this partial distribution would be allowed?  I had been told in the past that in-service distributions aren't allowed from fully insured plans.  But, this participant is past NRA, so this could be considered a partial distribution of the retirement benefit.

Thoughts?

Thanks,

Austin

For 401(k) plans that decide to allow Roth employer contributions, how, if at all, will the deduction rules change for those contributions? I'm thinking that traditional employers will still get a deduction, but what self-employed plan sponsors? Will it depend on the way the self-employed business is structured?

Thanks for any thoughts.

Suppose you have two non-governmental tax exempt employers, each of whom sponsors a 403(b) plan with, for all practical purposes, identical provisions. Both are calendar year plans. Are there any particular problems with permissively aggregating them for coverage and ACP testing, if one fails, but permissive aggregation would allow them to pass? I'm not seeing any, but perhaps I'm missing something.

It occurs to me that the original post left out the fact that they are a controlled group - a rather important piece of information!

Gracias.

Received a referral on a cash balance as well as a 401(k) plan. Cash balance no eligible employees (presumably), 401(k) remains to be seen.

My first question to him is the 401(k) "handled" by a payroll company as I refuse to takeover any such plan.

Secondly, ADP has no knowledge of the cash balance plan.

Third, the cash balance is on a 10/1-9/30 plan year; the 401(k) is calendar.

Regardless of different plan years, granted they need to be aggregated for deduction purposes; don't the plan need to be tested together for 401(a)(4) ?

Seems like a loss leader.