Quick Question.  Employer made the 12/31/21 loan repayments in early '22.  Would these be included as a receivable to the Plan?

We do take receivable contributions into account, so just wanted to make sure that loans were handled the same way and not on a cash basis.

Thanks!

I have read:

(1) that a younger beneficiary of a deceased plan participant is entitled to take a lump sum distribution and not be subject to the 10% premature distribution tax because the deceased participant was older than 59-1/2.  

(2) But then I also read that   "the lump sum you receive will be subject to local, state and federal income tax. However, you will not have to pay the 10% early withdrawal tax even if you and/or the deceased person are under 59 ½"  That seems fair to me, but then I don't decide what is fair.

Is #2 correct?
 

And on the side, the spouse of the beneficiary has no bearing at all on any tax matters.

Hi, 

I've encountered a very unique situation.  One of the terminating plan has a stable value fund and the client does not want to wait for the 12 months PUT period they want the MVA adjustment done and also they would pay the market value directly to the IRA provider where the participants will rollover.  I've never come across something like this, how can the participants can get paid or what would be a better approach? 

We have a debate in the office.  A 401(k) plan with an Integrated (4-tier) PS allocation @ 100% TWB.  (Excerpts from AA and BPD below.)   Fact:  The MAX SS integration is 100% TWB.  Q:  Can the plan choose to make less than 100% TWB (like 46% TWB) as long as the allocation is applied in the same non-discriminatory manner?  

Someone said it can be done & someone else said it cannot be done.  My brain hurts, so I am no longer sure.  Anyone else have some solid experience on this?

Per AA,

"...b) [X] Permitted disparity. In accordance with the permitted disparity allocation provisions of Section 3.04(B)(2), under which the
following permitted disparity formula and definition of "Excess Compensation" apply:
Formula (select one of (1), (2), or (3)):
(1) [ ] Two-tiered.
(2) [X] Four-tiered.
(3) [ ] Two-tiered, except that the four-tiered formula will apply in any Plan Year for which the Plan is top-heavy.
Excess Compensation. For purposes of Section 3.04(B)(2), "Excess Compensation" means Compensation in excess of the
integration level provided below (select one of (4) or (5)):
(4) [X] Percentage amount. 100% (not exceeding 100%) of the Taxable Wage Base in effect on the first day of the Plan
Year, rounded to the next highest $ (not exceeding the Taxable Wage Base)..."

Per the base plan doc...

"...(2) Permitted disparity allocation formula. The Employer in its Adoption Agreement may elect a two-tiered
or a four-tiered permitted disparity formula, providing allocations described in (a) or (b) below, respectively. The
Employer also may elect a two-tiered permitted disparity formula which changes to four-tiered in any Plan Year in
which the Plan is top-heavy.
(a) Two-tiered formula.
(i) Tier one. Under the first tier, the Plan Administrator will allocate the Employer
Contributions for a Plan Year in the same ratio that each Participant's Compensation plus
Excess Compensation (as the Employer defines that term in its Adoption Agreement) for the
Plan Year bears to the total Compensation plus Excess Compensation of all Participants for the
Plan Year. The allocation under this first tier, as a percentage of each Participant's
Compensation plus Excess Compensation, must not exceed the applicable percentage (5.7%,
5.4%, or 4.3%) listed under Section 3.04(B)(2)(c).
(ii) Tier two. Under the second tier, the Plan Administrator will allocate any remaining
Employer Contributions for a Plan Year in the same ratio that each Participant's Compensation
for the Plan Year bears to the total Compensation of all Participants for the Plan Year.
(b) Four-tiered formula.
(i) Tier one. Under the first tier, the Plan Administrator will allocate the Employer
Contributions for a Plan Year in the same ratio that each Participant's Compensation for the
Plan Year bears to the total Compensation of all Participants for the Plan Year, but not
exceeding 3% of each Participant's Compensation. Solely for purposes of this first tier
allocation, a "Participant" means, in addition to any Participant who satisfies the allocation
conditions of Section 3.06 for the Plan Year, any other Participant entitled to a Top-Heavy
Minimum Allocation. For purposes of both first tier and second tier allocations under this
Section 3.04(B)(2)(b), Compensation and Excess Compensation refer to Compensation as
determined under Section 10.06(A).
(ii) Tier two. Under the second tier, the Plan Administrator will allocate the Employer
Contributions for a Plan Year in the same ratio that each Participant's Excess Compensation
(as the Employer defines that term in its Adoption Agreement) for the Plan Year bears to the
total Excess Compensation of all Participants for the Plan Year, but not exceeding 3% of each
Participant's Excess Compensation.
(iii) Tier three. Under the third tier, the Plan Administrator will allocate the Employer
Contributions for a Plan Year in the same ratio that each Participant's Compensation plus
Excess Compensation for the Plan Year bears to the total Compensation plus Excess
Compensation of all Participants for the Plan Year. The allocation under this third tier, as a
percentage of each Participant's Compensation plus Excess Compensation, must not exceed
the applicable percentage (2.7%, 2.4%, or 1.3%) listed under Section 3.04(B)(2)(c).
(iv) Tier four. Under the fourth tier, the Plan Administrator will allocate any remaining
Employer Contributions for a Plan Year in the same ratio that each Participant's Compensation
for the Plan Year bears to the total Compensation of all Participants for the Plan Year.

(c) Maximum disparity table. For purposes of the permitted disparity allocation formulas under

For this purpose, the Taxable Wage Base is the contribution and benefit base under Section 230 of the
Social Security Act in effect at the beginning of the Plan Year. The integration level is the uniform amount
specified in the Employer's Adoption Agreement..."

Never had a plan do this before, but plan allows for in-kind distributions.  Any particular issues out there for self directed brokerage accounts that would like to basically rename their plan as an IRA and treat the value on that date as the direct rollover?

(Edit a few days later:  aw fiddlebeans, another terminology error on my part - I meant to type 'trust', not 'plan' in the phrase 'rename their trust'.)

We received a DRO from July 2020 back in 2020.  The order was clear, but contained some very odd terms, so we reached out to the parties to verify our interpretation.  We just heard back from them this week that our interpretation of the order is correct.  The DRO could be considered a QDRO, but can we process it now that its two years old?  I know there is the 18 month rule, but that appears to be more of a deadline for the administrator to process the Order, not a limit on how old the order can be.  

Can we process the Order?

Is there a limit as to how old an order can be and still be determined a QDRO and processed accordingly?

A plan failed the ADP test for the 2020 plan year and a refund was properly issued to the HCE by 12/31/2021.  When preparing the 2021 testing, the client discovered some of the compensation reported for 2020 was incorrect.  The 2020 ADP test was re-run with the correct compensation and the HCE is now due an additional $184.00.  Since we are past the 12 month correction period, will the refund fall under EPCRS and a one-to-one correction required?

Has anyone else been having trouble with Relius ASP customer service?  I understand we probably aren't their ideal client, but our issues aren't being resolved.  Problems like posting transactions easily see weeks turn around time, and more often than not I'm finding some manual workaround.  Since they've switched to that Portal, though, I'm wondering if I'm going about submitting for help the correct way.  It just seems very disjointed for the past year or so.

I'm also unsure that we've gotten any correspondence about the IE discontinuance and how to log in.  (I'm using our old stand alone version of the software currently because the plans I want to work on don't work on ASP.)

As we enter into another economically challenging time, I have a business owner who needs money for a short term issue.

He wants to, and can, take an in service distribution, and then return it to the plan within 60 days.  I'm thinking he is better off putting it into a new IRA but the advisor is saying to put it back into the plan.  What do other piggy bank owners do with such distributions? He understands he will receive a taxable 1099-R.

Has there yet been any consideration/action to waive 2022 RMDs [as in years prior] in light of the market plunge in valuations from YE 2021 highs due to the negative impact on retirement savings?

Has anyone seen guidance regarding paying out grandfathered deferred comp when the employee who deferred the compensation becomes an independent contractor?

Per Section 1.409A-1(h)(ii) of the 409A regs, an employee is not considered to have a separation from service if he or she shifts from employee status to independent contractor status.

A client has a grandfathered 2003 deferred compensation agreement.  The executive deferred the compensation until "Retirement," which has a rather loose definition.  If the plan committee finds that the employee has had a cessation of services to the company that is deemed to constitute a retirement, then he has retired. 

The executive has scaled back his work level, is retirement age, and is ready to retire.  The employer would like him to remain a consultant for a few years, likely working much less that he was as an employee.  Both parties would like to treat him as retired for purposes of the deferred comp agreement.

It seems the 409A concept of separation from service should not be applicable.  I am rusty on my pre-409A deferred comp payment triggers and whether there is a well-defined concept of separation from service (I have not found one in any event).  If in his new role he is truly a contractor as opposed to a common law employee, I believe he can reasonably be deemed to have retired and should be paid the deferred compensation that was deferred until his "retirement.'

Thanks in advance for any thoughts.

UPDATE - Edited for revised facts:

I received updated facts.  Turns out the individual was already an independent contractor when he made the original deferral in 2003.  He remains an independent contractor but will soon enter into a new agreement for a much lower payment and will be "significantly less active."  Though 409A does not apply, it would state that the individual does not terminate until there is an "expiration of the contract" and a "good faith and complete termination of the contractual relationship." § 1.409A-1(h)(ii)(2).

In the pre-409A landscape I could not find a definition of separation from service.  Even in the qualified plan space, there is no real concept of making distributions upon shifting to part-time status.  Also, contractors do not report the amount of hours or work done to the service recipient - they merely do requested tasks.  As such, it seems risky even in a non-409A world to deem a contractor to have "retired" and make a payment of deferred compensation based on a mere reduction in the scope of services under a new agreement.

Finally, what if the company pays out the deferred comp without an expiration of the contract and the IRS disagrees that there was a "retirement." Would 409A become applicable, with the IRS perhaps arguing that the company had made a "material modification" to the agreement, by adding a new distribution trigger (payment despite no cessation of services)?  The parties would have failed to follow the terms of a grandfathered plan and the failure would result in a material change to the payment timing.

Thanks again for any thoughts!

Facts -

Company A has a Safe Harbor Match Plan - 1 year of service

Company B has a non Safe Harbor Plan  - 2 months service requirement

Company A wants to merge Company B's plan into their plan. Can a non safe harbor merge into a safe harbor plan did year?

The only thing I found  was is if the surviving plan is Safe Harbor and a maybe notice was provided, the merger can happen mid year. Company A has a Safe Harbor Match so do they have to wait until 1/1/ to merge the plans?

thanks

Good afternoon!  Have a potential client that's looking to setup both a DC and DB Plan.  No issue in that, but where they are looking to invest the money is asking for separate EIN # for each Plan.  Is that normal?  Just curious, as it's not something I've previously encountered.

Thanks, and sorry for all the questions lately!

Does anyone have 4-Tier Integrated PS Calc in Excel that walks one through the steps to calc per tier?  I am super rusty and want to make sure I do it correctly.

Hi

Taking over a TBP - target benefit plan -  with some issues that I was able to determine for 2020 plan year:

1- Participant had $1,000 salary and got an allocation of $3,000 - they did not check this 415(c), 100% compensation limit rule even if the report clearly stated 415 violation. They simply applied the contribution based on the formula without looking into the 415(c) limit.

2- The owner was allocated $0 but I think should have had an allocation due to the incorrect calculations. The owner had $10,000 in salary.

So:

• The contributions were made after the end of 2020 plan year so I can fix the 415 issue but the fact that the deduction was taken is another issue. What to do with the excess deduction (assume no allocation to the owner for this scenario). Cannot allocate to others as all TBP calculations are based on a formula.
• If I determine an allocation was due to the owner, I can use a portion of the excess from above but still would be short. As the contributions are mandatory, how to correct the missing contribution? For arguments sake, let's say $5,000 is short for 2020. They probably will need excise tax of 10% for each 2020 and 2021 i.e. 5330.

Any suggestions especially of self-correction?

Thanks

Facts:

Company A, owned 100% by Adam has a 401k plan

Company B, owned 100% by Bob has a 401k plan

Neither company are currently related in any way.

They are going to form Company C (33% owners each with a third unrelated owner) starting July 1, 2022.

All of Company A clients and employees will move to Company C

95% of clients and employees of Company B will move to Company C.

The owner of Company B will be on payroll and Company B & C.

The idea is to have Company C take over as plan sponsor of Company A.

The question is:

1. Can company B retain their 401k plan and not be related to Company C? The owner would like to keep his assets where they are while all of the employees of B transition to C would roll their money over. 

2. Or should Company B terminate 6/30/22 to avoid issues.

3. For Testing purposes, how should this be handled?

     1/1-6/30 for A, 1/1-6/30 for B and 7/1-12/31 for C?

     C do 1/1-12/31 for A employees and 7/1-12/31 for B? 

any help would be great.

If a DC Plan wants to amend the Normal Retirement Age (i.e. for 55 to 65), is that an amendment that can be done mid-year or should it wait for the first of the year?  The question is due to vesting, as the Plan states that they become 100% vested at Normal Retirement (which the previous TPA set at 55). 

The second question is, I know a change like this can't have a negative impact (like when you amend the vesting schedule).  Does that mean that anyone who is currently employed must still become 100% vested once they reach 55, or can it impact anyone who has not yet reached NRA (if a current employee is 54 and they amend the NRA to 65, does that mean that participant has to wait until 65 or to work the necessary years).

Thanks!

Hello, 

We are looking for an actuary for a school district defined benefit plan in CT.  Can you please contact me if interested?

Thank you.

This seems to comes up periodically... some of the threads end up trailing off, and some don't seem to come to the same conclusions (though that might be me misreading them!) because this is not particularly intuitive, so let me try and ask this with a concrete example that was just presented to me.  I'll even link some of the previous threads that I thought were good ones.

Doctor D is doing the max 403b deferrals and getting a match in the hospital's 403b plan.  He is now about to start a practice of his own (100% owner) and wants to start up a 401k plan - deferrals, 3% SH, class based profit sharing.  He does not control the hospital or sit on its board.  He is 55 years old.  I don't have exact numbers, but let's make the math easy and say he's getting $200K compensation from the hospital and expecting $300K from his S-corp practice.  The hospital's 403b match is capped at 2%.

He can't double-dip on deferrals between both plans, so he will do those in the 403b plan to get the match (if the CPA can find a tax angle for him to do deferrals from the private practice in 2023 that is worth giving up the match, he can make that change in January 2023).  But let's assume that he keeps deferring into the 403b plan.

Do I have to include the 403b deferrals in any testing that I do?  It appears "yes": $67,500 max including catch-up less $27,000 403b deferrals = $40,500 that he can get as employer (i.e., non-401k) contributions in the 401k plan.

Does the match he is getting affect this at all?  I'm thinking "no", since it is an unrelated employer, even though there is all that stuff about the 403b 'belonging' to him.

That's actually another question: the 1.415(f)-1 regs refer to a 403b "annuity contract"... but what if the 403b plan is not held in annuity contracts, but it's instead on a mutual fund recordkeeping platform?  Is that splitting hairs?  Admittedly, it might be...

If Doctor D was establishing this as an equal partnership with Doctors E and F 1/3 apiece, since D's ownership would be less than 50%, would he not have to count his 403b deferrals against his $67,000 limit and/or $27,000 limit, in effect getting two separate limits?

Is there anything else that needs to be considered?  Any of this incorrect?  Thanks.

November 2016 thread
July 2017 thread
March 2018 thread
November 2021 thread

Also reference your favorite site for 415(c) and 1.415(f)-1(f) (see especially Examples 6 and 7).

Why do companies put in days instead of months for a service requirement? It is MUCH easier to figure it out with months as the baseline.

For example, a plan requires 60 days of service, monthly entry (next or coinciding). Employee is hired July 3. When does she enter the plan? September 1. That's 60 days of service.

What if it was April 3? June 1? Nope. July 1. 60 days of service is June 2.

If it was two months of service, it's much easier. Anyone hired on the 3rd of the month enters the same day: first day of the third month after hire. No counting days. No missed deferral opportunity.

Someone hired on Aril 3 has to wait 28 more days to enter the plan than someone hired on July 3.  Doesn't make sense.