If a plan provides that an employee will become a participant eligible to receive employer contributions "immediately" upon meeting the eligibility requirements, and the eligibility requirement is 2 eligibility computation periods in which he completes 1,000 hours of service, does the employee enter the plan on the last day of the second eligibility computation period, or the day after? 

In this situation the eligibility computation period is the 12-month period beginning on date of hire and then switches to plan year.  Date of hire is 1/1/2022 and plan year is calendar year. So eligibility computation periods are 1/1/22 - 12/31/22 and 1/1/23 - 12/31/23.  Does the employee become a participant on 12/31/23 or 1/1/24?   

I have generally interpreted similar terms to mean that the day has to be completed for the eligibility period to be completed, meaning the ECP ends at 11:59 on 12/31/23 and then the employee becomes a participant immediately at 12:00 am on 1/1/24. But the TPA's interpretation is the employee became a participant on 12/31/23.  

This is a money purchase plan, if that's relevant, and the issue is whether the participant should have received a contribution based on his compensation for the day of 12/31/23.

For minimum distribution, what date’s ownership counts to determine a 5%-owner?

Here’s my not-entirely hypothetical:

A partnership is the plan sponsor and only participating employer of an individual-account § 401(a)-(k) retirement plan. The plan year is the calendar year. The partnership’s tax year is the calendar year. Every partner is on the calendar year for one’s tax year. The partnership has no mandatory retirement age, nor even a presumed ordinary retirement age.

A working partner will reach age 73 during 2027 (and expects to continue working into her 80s).

“For purposes of section 401(a)(9), a 5-percent owner is an employee [including a deemed employee] who is a 5-percent owner (as defined in section 416) with respect to the plan year ending in the calendar year in which the employee attains the applicable age.” 26 C.F.R. § 1.401(a)(9)-2(b)(3)(ii) (emphasis added) https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)(9)-2#p-1.401(a)(9)-2(b)(3)(ii).

Does this mean the measurement date is December 31, 2026?

Under the partnership agreement, a partner’s capital interest can change any day. For example, a partner might get distributions from capital, or even might withdraw capital. A partner’s profits interest, if measured as a percentage of the partnership’s profit, can change because the partner’s interest is measured by several factors, including (for a relevant year or other period) the partner’s revenue generation to her practice, expenses specifically allocated to her practice, origination credits for having introduced a client to another partner’s practice, and a proportionate share of the partnership’s general overhead allocated to all practices.

The plan’s administrator wants to get the measurement date right so it neither fails to meet § 401(a)(9) nor unnecessarily (and improperly) directs an involuntary distribution the plan does not provide.

BenefitsLink neighbors, how’s my guess?

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We might take over a 1 participant DB plan. The plan is in its ninth year.

The plan has adequate assets to pay all benefit liabilities. Looks like it always has. The problem is that no AFTAP was ever done. So benefit accruals are frozen for years 6,7 and 8. If we get the current AFTAP timely signed, it is at 122%. If this is done, are all prior benefit accruals (from years 6,7 and 8 automatically restored?

Thanks.

If tips are no longer subject to payroll taxes, should they go into a plan as Roth?

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For a 7/1/24 - 6/30/25 plan year, would participants that are age 60-63 at 12/31/25 be able to make the additional catch-up (if the plan wanted to allow)?  Or is it effective for plan years starting after 12/31/24? If a plan fails 6/30/25 PYE ADP testing and someone age 61 has all C/U available, would 11,250 or 7,500 be reclassed for this PY?

402(g) limit is tied to the individual and calendar year.  Everything I'm seeing about special catch-up references taxable year.  But perhaps 401(a)(30) / plan's responsibility to monitor the limit changes effective date of this?

Thanks in advance!

Entity B is 51% owned by Entity C and 49% by Entity A.

Entity B exists only on paper at this point. It has no business operations or employees. It sponsors an underfunded DB plan, but entity A operates the plan and employees from A serve as the plan's fiduciary. Entity A and Entity C also has their own DB plans.

Entity A and Entity C cannot/will not arrive at a deal for either of them to take 80%+ ownership of Entity B and enable them to merge the B plan into their own DB plan.

Are there any mechanisms that would allow A or C to merge the B plan into its own plan without taking 80% ownership of the B entity? Could this be negotiated between A and C?

We are running a projection for a plan with permitted disparity and trying to max out the owners.  Is it possible to max out two owners if one maxes out before the other? One's deferrals are less than the other, so they can receive a larger profit sharing. 

HCE #1 $350,000 comp $23,500 Roth $21,000 6% SH Match - if we give $25,500 PS - this is 7.29%

HCE #2 $350,000 comp $18,500 Roth $18,500 6% SH Match - if we give $33,000 PS - this is 9.43%

I ran this through chat(k) and the response was below: 

By sizing profit-sharing so that HCE #1 reaches $70,000, you establish a uniform 7.2857% profit-sharing rate. Participant #2 therefore also receives $25,500 of profit-sharing, bringing his total contributions to $62,500. He cannot reach the $70,000 cap under the same allocation formula. Under a four-step permitted-disparity profit-sharing formula, both owners’ allocations derive from one uniform banded schedule. 

Once we max out #1 at 7.29%, is that what HCE #2 must receive?  There are also two NHCEs - so this also affects what they get - if we can give #2 up to $70,000, then I assume their % is based off the higher number.  

About a month ago our building was struck by lightning and we lost most of our computers.  I had a very old machine still set up just to run Relius Proposal.  Naturally that old lady is one that got killed. I really preferred the simplicity of set up for new plan proposals. I am aware it is no longer updated or supported but the tables were manually updated so it still worked for a limited purpose.  I am just wondering if anybody has had any luck getting it to run on a newer machine.  Or is it time to start hitting up yard sales for old parts?

Taking over a plan where some participants have insurance policies (the broker "forgot" to mention that, grrrrr).  I asked about PS 58 costs and the sponsor told me they were not necessary because the employee pre-tax deferrals were covering the premiums (being sent directly to the insurance company instead of to the recordkeeper).  I've never heard of that, but I know very little about insurance other than I don't want to deal with it.  Anyone want to confirm or debunk this?  Thanks.

On 12/3/2023 at 3:39 PM, Paul I said:

Let's now consider what happens if the participant remains active and begins making loan repayments for the deemed loan:

• The plan begins to credit repayments of principal and interest against outstanding balance of the promissory note that includes the interest that accrued after the loan was declared a deemed distribution.
• The amount of the deemed distribution is considered as after-tax basis for the participant.
• The interest on these repayments is treated no differently that the way interest was treated before the deemed distribution.  It is interest received as income to the plan.  The interest repaid by the participant does not create additional basis in the account (just like how income on after-tax contributions does not create additional basis for the participant).

Some loan policies may address the plan accounting which can impact the accounting of the above scenarios, but these policies should not create additional basis for the participant.

Practitioners who have many, many years in the business may remember when interest on personal loans, credit card interest, and interest on plan loans were all deductible.  Those were the days where loan interest was the equivalent of a pre-tax deferral.

I was looking for this kind of information so I'm glad to find a page of people that seem to know what they are talking about. 

How do we reconcile the lines above with the example given in 1.72(p)-1  Q&A-21  which says:
 

Quote

Q-21: Is a participant's tax basis under the plan increased if the participant repays the loan after a deemed distribution?

A-21:

(a) Repayments after deemed distribution. Yes, if the participant or beneficiary repays the loan after a deemed distribution of the loan under section 72(p), then, for purposes of section 72(e), the participant's or beneficiary's investment in the contract (tax basis) under the plan increases by the amount of the cash repayments that the participant or beneficiary makes on the loan after the deemed distribution. However, loan repayments are not treated as after-tax contributions for other purposes, including sections 401(m) and 415(c)(2)(B).

(b) Example. The following example illustrates the rules in paragraph (a) of this Q&A-21 and is based on the assumptions described in the introductory text of this section:

Example.

(i) A participant receives a $20,000 loan on January 1, 2003, to be repaid in 20 quarterly installments of $1,245 each. On December 31, 2003, the outstanding loan balance ($19,179) is deemed distributed as a result of a failure to make quarterly installment payments that were due on September 30, 2003 and December 31, 2003. On June 30, 2004, the participant repays $5,147 (which is the sum of the three installment payments that were due on September 30, 2003, December 31, 2003, and March 31, 2004, with interest thereon to June 30, 2004, plus the installment payment due on June 30, 2004). Thereafter, the participant resumes making the installment payments of $1,245 from September 30, 2004 through December 31, 2007. The loan repayments made after December 31, 2003 through December 31, 2007 total $22,577.

(ii) Because the participant repaid $22,577 after the deemed distribution that occurred on December 31, 2003, the participant has investment in the contract (tax basis) equal to $22,577 (14 payments of $1,245 each plus a single payment of $5,147) as of December 31, 2007.

Plan compensation is defined as W-2 compensation with no exclusions

Employer provides group term life and has to add to the employee's W-2 at end of year the PS 58 costs (or whatever it is called today).  Plan is silent as to non cash compensation in this regard.  I remember years ago at a seminar that you cannot defer to the 401(k) if no cash element.  I just never see non-cash fringe benefits being excluded in the Plan documents for 401(k) purposes.  Is this because a cash or deferred arrangement?  I am confused and not sure if I need to be concerned.

Thoughts / cites are very much welcome.

401k participant terminates employment due to disability in 2020 (entitling him to an immediate distribution under the terms of the plan) and dies 4 months later.  No distribution made to participant following his termination and prior to his death.  Primary beneficiary alive at this time however she dies 10 months later in 2021.  No distribution to primary beneficiary before her death.  Participant's benefit still in plan and under $1,000.  Plan administrator is trying to determine the proper party to receive distribution of account and get the money out of the plan.  Based on the timing, I would think the primary beneficiary was entitled to an immediate distribution upon the participant's death in 2020 and because she subsequently died, the distribution should go to her estate.  We do not know if an estate was opened but we have contact information for her daughter (the sister of the participant).  Could the plan administrator issue a check to the "Estate of [Mother]" and mail it to her daughter?  Then her daughter can decide whether the open an estate? Or would it make more sense to just rollover the account to an IRA as provided in the plan's small cash-out provision?

Do any of you that maintain PHI on behalf of a covered entity use Microsoft as your cloud provider?  Have any of you who do successfully convinced Microsoft to enter into a business associate agreement?  Thanks.

A controlled group exists and encompasses six different 401k plans as follows:

1. Traditional safe harbor using safe harbor employer match formula

2. Traditional 401k with its own employer match formula

3. Traditional 401k with its own employer match formula

4. Traditional 401k with its own employer match formula

5. Traditional 401k with its own employer match formula

6. QACA safe harbor using an Enhanced Match formula

*The plan count has been paired down as far as it can so combining plans is not an option.

I know this is an off the wall question but could #s 1 and 6 intentionally ignore the ADP/ACP testing exemption so the NHCEs from each plan could potentially help the other plans pass ADP/ACP testing and avoid refunds?

I have a prospect that is currently engaged with a PEO, but unhappy with it.  What they would like to do is start a new 401(k) (along with other benefits) for their office staff immediately, then at year end, when the contract with the PEO runs out, move all the warehouse/PEO employees into the new 401(k) plan.  It would seem to me that it's possible to do this, but I feel we may need to test the plan as a whole, including all the employees currently in the PEO plan?  The plans would have the same benefits, eligibility, match, etc. so that's not an issue.  Would it be possible to exclude leased employees (those under the PEO) from the new plan and then once they become true employees of the new company at year-end, they would become eligible for the independent plan?  Odd circumstances, I'm not sure exactly why they would want to do it this way, it seems needlessly complicated.  They described it as wanting to use the office employees as the guinea pigs for the new benefits so that when the PEO employees join the plan there wouldn't be any hiccups.  Any thoughts are appreciated.

What is MEP Plan? What is the different types of MEP? What is Controlled Group and Affiliated Service Group? What is the difference of CG and MEP? What is unrelated and related Employer in MEP? Is it necessary that MEP plan should be Controlled Group? Is Combined Testing is mandatory in MEP? When is MEP is preform combined testing?

Is there any IRS documents which explains all these things? Or any other documents.

Hi, 

Plan sponsor is yet to start the termination process however they have questions regarding profit sharing and safe harbor.  There is a balance of $3000 in the forfeiture account.

1. Are they required to make a profit sharing contribution for 2025 plan year (10/30/2025 - or whatever date is prior to that for termination of the plan) They only had payroll for the month of December 2024- they are anticipating that the final 3% safe harbor for 2025 plan year would only be approx. $1500. is that true? 
2. They haven't determined the termination date yet.