Good morning everyone.  Just a quick question, our document software defaulted to add the following when we entered to exclude part-time employees:

"Notwithstanding the foregoing, any Part-Time Employee who is excluded hereunder will nevertheless be considered an Eligible Employee if he or she is credited with at least 1,000 Hours of Service during any Eligibility Computation Period beginning on or after his or her Employment or Reemployment Commencement Date and is an Employee on the last day of such Eligibility Computation Period"

Is there an issue with removing this language?  They want to exclude all part-time employees, even if they ultimately work 1,000 hours in a year, and they definitely wouldn't have a testing issue.

Thanks everyone!

PSP only pooled account.  Client is considering amending plan from distributions as soon as administratively feasible in plan year following termination to as soon as administratively feasible in year of termination.  We never do that and have our reasons but just trying to think through if I'm missing anything.  Who allows this?  What kind of issues do you encounter?  Plan has a right to an interim valuation if warranted and will be doing that this year if they make this amendment.

I guess I never saw this situation before -

All participants have self directed brokerage accounts.

Plan is set up as a 404(c) plan.

There is no QDIA.

I thought 404(c) plans had to have a qdia.

Plan sponsor has finally agreed to correct a plan by depositing long overdue safe harbor contributions (w/earnings).

They would like to terminate the plan, but they do not want to do the following:

• Submit a formal VCP correction
• Restate their plan document

I cannot stress enough, getting this deposit made is a tremendous achievement that we celebrated with jellybeans in the office.

I know we are not the only ones with awful clients. I also know the standard recommendation is to 'fire the client', but that frustrates me because that doesn't really solve the problems. 

That being said, I'm just looking for thoughts on helping them terminate the plan under those conditions, aside from incredibly caveated letter at what their risks are going to be.

Recently, I was asked for advice on State-law fiduciary issues about a retirement plan.

The plan’s sponsor, a profit-seeking limited-liability company (treated as a partnership for Federal income tax purposes), has no employee, and no intent to hire an employee. Everyone who works in the business is an LLC member. And yes, I checked that the LLC interests are real, and not a sham to evade treating a worker as an employee.

How often does this happen—that every worker is a partner, an LLC member treated as a partner, or otherwise an owner treated as not an employee?

Does it happen often enough that a service provider would plan for these situations?

I understand a plan is not required to restate if it terminates prior to 7/31/22, albeit it must be fully up to date, including at this time the Hardship and SECURE amendments.

That being said, if a plan does terminate but does not yet distribute assets in full by 7/31/22, would there be any qualification issue?

I'm thinking it's okay but wanted to throw that out.

Prior Plan Doc states that both HCE and NHCE will receive top heavy minimum. Any reason it cannot be removed for HCE for new restatement?

Assuming yes, with last day required, any reason it would be treated as accrued?  In other words I believe it can be removed for current plan year without removing an earned benefit by the HCE.

Edit after receiving several responses below:  I should have typed Key and Non Key above instead of HCE and NHCE.

Here is a question from an ERISA attorney that I have discussions with from time to time. He isn't sure of where to go here, and, after reading it, neither do I. Any opinions would be appreciated, thanks. The only thing I could think of here would be for the employer to buy back the stock from the plan, but don't know if that would fly.

Private employer has for a number of years permitted employees to elect to invest in employer stock through the 401k. The employer stock is darn-near illiquid from a trading perspective – there just isn’t any real market for it. But, the employer stock regularly pays a pretty decent cash dividend. A lot of the employee population is approaching retirement age. People are starting to request distributions that can’t be processed because the stock is illiquid.

If this was an ESOP, I’d say the trustee should have been managing the stock/cash mix for this. In this case, I think there is still a fiduciary responsibility to act but I’m sort of stuck on what that responsibility might be. I’m also concerned that we’d be violating distribution rules if we just say “sorry, illiquid stock.”

Under the terms of the 401(k) plan document, a related employer must complete a participating employer adoption page for employees of that related employer to participate in the 401(k) plan.

The 401(k) plan sponsor is an S Corp, and employees of a QSub of the plan sponsor also participated in the 401(k) plan but a participating employer adoption page was not completed for the QSub.

We know that a QSub is disregarded for federal tax purposes because its assets, liabilities, and items of income, deduction, and credit are treated as owned by the parent S corporation, so this may make sense.

Has anyone else seen a QSub participate without completing a participating employer adoption page?

So, unbeknownst to me, the ER wanted to give everyone $1,000 in their 401(k) plan.  However, if they didn't have an account, it was paid as a bonus.  If they had an account, but chose otherwise, it was paid as a bonus.

I know this is a no-no.  The contributions will be considered deferrals for 402(g) purposes.  (I think it pushed one person over the threshold)

But what other correction needs to be done?  Could they give all the missing people the $1,000 and just call it a PS?  (I'm not sure if they filed their 2021 taxes yet.)

I've heard of situations like these, but never encountered one first hand.

PArtcipant hired February 1, 2021 and worked 2 months before quitting.  They are rehired tooday, which is more than 12 months after their termination date so they had a break in service.  Plan uses elapsed time.

When would this participant satisfy a 6 month eligibility?  Does their 2 months pre-break count is really the question?  My Basic Plan Document only says "If any Eligible Employee who had not satisfied the Plan's eligibility requirements is rehired after  severance from employment, then such Eligible Employee shall become a Participant in the Plan in accordance with the eligibility requirements set forth in the Adoption Agreement and the Plan."

I'm inclined to say the 2 months pre-break counts but I cannot find anything straight on point, including the EOB...

A cross-tested Safe Harbor 401k Plan has approximately $14,000 in forfeitures. The plan permits them to be applied towards ALL employer contributions or pay Plan expenses. The Plan is Top-Heavy. The employer does not want to contribute much if anything because 2021 was down. 1 HCE/Key employee; 6 NHCEs, 1 of whom terminated before end of year.

The Safe Harbor Matching contribution plus the discretionary Matching that satisfies ACP Safe Harbor total approximately $11,000. This leaves $3,000 in forfeitures on the table.

1. The $3,000 is not sufficient to fully fund the 3% Top Heavy Minimums - this means the employer will have to fund the difference.
2. Since it is cross-tested the Key/HCE could provide 0% Profit Sharing for himself (Plan does not require THM for Keys) - this would then permit a zero PS allocation to the 1 terminated NHCE; fund only the 5 Active NHCE staff but this still requires some employer funding to satisfy the 3% Top Heavy Minimums to the Active NHCEs. Note: the NHCEs must receive the full 3% because the HCE/Key allocation is greater than 3% even with Profit Sharing at zero.

QUESTION:  Is there any prohibition in using $11,000 towards the Safe Harbor Matching contributions (ADP and ACP), and not allocate any Profit Sharing to avoid the Top Heavy Minimum trigger; use the balance of the forfeitures towards the Plan's Annual Fees (that is usually paid by the employer)? Would this be prohibited since it is avoiding the Top Heavy Minimum requirement?

Thank you.

I hope BenefitsLink neighbors will help me by responding to this survey about methods and customs in delivering documents for a managed-account service.

Assume an individual-account retirement plan that provides participant-directed investment. Assume the plan’s top fiduciary approves a registered investment adviser’s offer of its managed-account service. The service is provided only to a participant (or other investment-directing individual) who agrees to the extra service, and agrees that the investment adviser’s fee is charged against her plan account.

Does the adviser deliver its investment-advisory agreement:

1)        as a paper document?

2)        as a pdf attached to an email?

3)        by showing a hyperlink that points to a webpage on which the agreement is hosted?

4)        by some other means, and if so what?

Does the participant/advisee sign the agreement:

1)        with ink on paper?

2)        using an electronic-signature service?

3)        by clicking an “I approve” button in the plan’s or the adviser’s website?

4)        by some other means, and if so what?

When the adviser later must deliver a required disclosure, is it:

1)        paper sent by US mail?

2)        a pdf attached to an email sent to each participant/advisee?

3)        a notice-and-access email with a pointer to the website on which the document is hosted?

4)        notice in a quarterly statement?

5)        by some other means, and if so what?

Thank you for your good help and practical observations.

Looking for thoughts on whether the Virta diabetic add on program would be subject to COBRA.  I'm inclined to say no, that it is an independent, non-coordinated benefit (disease-specific, excepted benefit, but wanted to see what everyone else's thoughts are.

Thank you!

This may be a good year to consider an in-plan Roth conversion within one's 401(k), provided the plan document allows.   If someone converts now and the market drops a lot further, can they reverse their conversion before the end of the year?  I recall this was possible a few years ago.  If it is allowable, it may also depend on the record keeper.

Thank you,

Tom

Do employers generally track hours separately from pay, ie W-2 pay?

So W-2 reports pay for pay date 12/31 of the prior year, paid on 1/5.

Employee had 970 actual hours worked in the current year, but when hours are reported alongside payroll, there were 1010 hours worked. 

Say the 12/31 hours reported on the 1/5 payroll are not included, but the terminee has 40 hours of vacation pay.

In both those situations, what do companies generally do, count the hours?

A governmental employer sponsors a 401(a) defined contribution plan, a 401(K) plan, and a 457 (b) plan.  For purposes of the annual contribution limits under 415 (c), are the 457 (b) plan contributions treated separately, or are they combined with the 401(k) and 401(a) contributions?

A 401(k) plan operates on a fiscal year - July 1st through June 30th. The plan document defines the limitation year as the plan year for everything (except for the deferral limit). For the plan year ending June 30, 2022, an employee under the age of 50 has contributed $25,000 in 401(k) deferrals during the plan year (though never exceeding the calendar year limit). The annual additions limit is $58,000. The deferral limit is $19,500.

Had the employee deferred only $19,500 during the plan year, he would receive an employer contribution of $38,500. By deferring $25,000 during the plan year, is this employee limited to $33,000 of employer contributions for the plan year ending June 30, 2022?

This small CPA firm has 6 employees.  A receptionist is leaving and is 80% vested at best.  The owner wants her to receive her full account balance.  The 2/20 TH vesting leaves her just short.  I suggested with the Cycle 3 restatement requirement change to a 3 year cliff which would also be TH compliant.  He want's to just give her the full account balance (her money is segregated, all segregated investment accounts).  He asked me "what if we call it a mistake, we paid her out everything by mistake, what harm would there be?"  I said it would be an operational failure, you didn't follow the document as it stands.  Would the IRS come down on them if by chance there is an audit? He wants to just do it.  

Wrap plan with 12/1 - 11/30 plan year.  Employer wants to change to a calendar year.  Can the effective date of the amendment be 12/1/21 (resulting in a short plan year of 12/1/21-12/31/21 and new plan year of 1/1/22 - 12/31/22) or do we have to use a 12/1/22 effective date?  I have seen references in articles that an amendment to change the plan year cannot be effective until the first day of the next plan year, but they do not provide any citations.  I guess technically if we use a 12/1/21 effective date the amendment will be retroactive since it will be adopted after the end of the new short plan year...  Any help/citations either way would be appreciated!