Wanted to ask if anyone has any experience with clawbacks of sign on bonuses when the plan has immediate entry and the employee defers from this compensation but it is clawed back at a later date.  My understanding is that the impact on employer contributions depends on the definition of compensation in the plan document (one of the safe harbors).  It is also my understanding that the 401(k) deferrals, once made are eligible deferrals at the time of deposit so that the clawback would not impact the amount of 401(k) deferrals in the employee's account.  The employer contribution, and any adjustment, will depend on whether the clawback occurs in the same tax year or crosses over tax years. 

Does anyone have a good reference point or other items to consider?  Noting here that my recommendation would be to not have these included in eligible compensation to prevent any impact on the 401(k) plan, but many large companies have immediate entry these days.  Just looking for others experience.  TYIA!

Probably a simple question - I don't see where there is family attribution required for officers, only for >5% owners.  I need to be 100% sure since top heavy status can be a VERY ugly surprise to a plan sponsor with many employees.

Thank you

Hello, have a unique situation summarized below and curious how to proceed. Any information would be appreciated. 

Plan had 3 employees (2 owners and a non-HCE). The only contributions allow to the plan are a Profit Sharing allocation in which all receive an equal proportion to compensation. This contributions is on a 6 year graded vesting schedule. They have a 1 year of service required of 1,000 hours to which a new employee met. They became eligible based on reaching 1,000 using their anniversary date as their determination period.

The employee did not reach 1,000 in a calendar year and will not meet this requirement at any point. The concern is putting profit sharing money annually when this employee will never meet any level of vesting service would cause frustration with the employee as they will receive a profit share and statement annually while continually having 0% vesting. The client and participant are curious if she is able to put something in writing to opt out or waive the rights to a profit share to avoid this.

Our concern is that since this employee reached eligibility, the plan would fail coverage testing and require a corrective contribution. If the employee has opted out of the plan entirely, would they be owed a QNEC for a failed coverage test or would the opt out from the plan apply?

A brand new plan for the 2022 plan year has a safe harbor match provision. The plan document states that safe harbor contributions are determined at the end of the plan year. However, there was only 1 payroll in 2022 that was in effect. Plan sponsor provided safe harbor match for that one payroll. Is the plan sponsor required to true-up the safe harbor match for the entire year and if their original intention was to fund it on a per payroll basis, can this be corrected under SCP? 

If a charity’s § 403(b) plan provides a qualified automatic contribution arrangement with auto-escalation, to get coverage and nondiscrimination safe harbors:

how much must the employer provide as a matching contribution?

how much must the employer provide as a nonelective contribution?

We have client that sponsors both a cash balance and 401(k) safe harbor.  A participant terminated in 2019 and was paid from both plans in 2020 and receive distributions of the entire account(s).

She has subsequently returned 6/17/2022.  Since less than 5 years, she enters both plans on her date of rehire.  She was FT when she quit, returned PT.  I seem to remember "once a participant, always a participant" so it is irrelevant she is now PT and must receive the safe harbor based on W-2.

Cash balance accrual is 1,000 hours.  Even though she may not have worked the 1,000 hrs, the question is, does she re-enter the cash balance plan and is entitled to receive the "hypothetical allocation"?

of course, the client tells me yesterday they will not be filing an extension and needs the contiubtio numbers today! (What else is new.)

For some reason, the last salary deferral for a participant did not go through payroll.  In an effort to get the contribution invested by 12/31, he wrote a personal check, which was then deposited into his account.

How does one correct this???

CB plan covers only husband, wife, 22 year old daughter. Is this plan covered by the PBGC?

Recently took over a safe harbor 401K with 5 partners, no NHCEs, each in his own grouping for allocation purposes. One of the partners wishes to contribute $0 and we were told by the previous TPA that if the partner did not contribute, he is not considered part of the plan and therefore could not have a contribution allocation of $0??

FtWilliam plan document - adoption agreement allows inservice distributions for participants age 59-1/2 and fully vested.  Employee with 20+ years service wants to go part-time and take inservice.  Plan assets are held in pooled account.  Looking for example of procedure that spells out limitations and ordering rules.  Any advice appreciated!

Thanks!

Under what circumstances are practitioners having participants complete Form W-4R for lump sum distributions of balances under $200.  Prior to 2023, based on the wording in the Special Tax Notice, the plans we administer did not withhold on lump sum distributions under $200.  If the participant wanted federal income tax withheld, they would need to elect the withholding percentage on the distribution form.  Is 20% withholding (or more) now the only option?   Does Form W-4R not have to be provided because the plan is not required to withhold- even though it is an eligible rollover distribution, just not one that a direct rollover option is provided.

And the Nerds Cheer?

Secant, tangent, cosine, sine. Three point one four one five nine!

Simple real example:

Dentist and wife are eligible as are three employees.  It is safe harbor match plan.  One employee terminated with <501 hours.  We are allocating PS only to the doctor and the two ongoing employees to meet 410(b) and in a uniform integrated amount to pass 401(a)(4).  The dentist prefers to cover the terminated employee which he can as a class-allocated plan with no allocation conditions and this employee only had $2,000 in wages.  This would mean full PS to 2 NHCS and top heavy to the 3rd employee who is still working.  The result is significantly less cost.

My real question is with the testing software - I thought those who terminated with <501 hours were excluded from testing.  That would mean only 2 eligible NHCEs in the testing and only one would have to be covered to pass ratio %, but the testing reports say fail if we only cover one.  The employee is coded correctly in the software application with just a few hours and a termination date.

Comments? Thanks

Plan allowed insurance and the participant was paying premiums from his account. Participant decided he no longer wanted the insurance and contacted the insurance provider and cancelled the policy.    The provider sent him a check for the Cash Surrender Value. The insurance company was not responsible for the 1099R.

The Cash Surrender Value was $56,000. The plan issued a 1099R to the participant for the full Cash Surrender Value.  The participant stated the insurance company told him he would only pay tax on the gain of the policy - difference between the Surrender Value and the investment in the policy, this was approximately $9,356.

Since the premiums were paid with pre tax dollars, isn't the total Cash Surrender Value taxable income?  I am not sure the insurance company realized this was held under a 401(k) Plan vs a private policy.

Thoughts

Thanks.

We have a plan that has a 5% PS contribution.  Many years ago they permitted employees to receive the 5% as cash instead of the PS.  They eliminated that option but we still have a handful of employees still receiving the cash instead of the PS.    Would this be permitted?  Would that make the entire ps a coda even though they no longer have the option to take as cash?

Hi

Plan terminated as of 12/31/2022 (PBGC).

PVAB as of 12/31/2022 was 710k (based on 417e rates), just calculated as just got the census. Based on this the plan was 200k underfunded due to aggressive investing.

Ran the termination numbers as of 6/30/2023 and now PVAB dropped to 450k, a 36% drop. Believe it or not 5% GAR94 yielded higher PVAB than 417e.

Initial estimated calculations done in 2022 showed approximately 25-28% drop.

Now I have plan that is suddenly over funded by possibly 75-100k.

I did the 1% safe harbor allocation method for the excess but the results were terrible (owner got only 35%)

Current plan document states reversion to company for any excess.

I believe one of the following can be done rather than reverting to company:

• Generate a spreadsheet with using 1% of average compensation and allocate the excess pro-rata based on PVAB's as of 6/30/2023. This can be done now with an amendment.
• Make an amendment now (after termination date) and allow the excess to be transferred to a qualified replacement plan.
• Undo the freeze, create a new benefit structure (possibly discriminatory allocation and test it). Restart the termination sometime in August and distribute the assets prior to 12/31/2023.
• Amend the plan to have a higher mortality table where everyone will get a higher PVAB
• Amend the plan to change the look back month - August 2022 would yield much higher results

Anything else?

Any comments/suggestions are appreciated.

Thank you

I was automatically enrolled in a 401k by my employer without my consent, and after I filed a form to opt-out of their automatic enrollment program. What can I do to get the money they deducted from paychecks returned?

A former employee had been receiving annual payments from her NQDC plan, and we were issuing her W-2s. We just learned the former employee died a couple years ago. The spouse has continued to cash her checks. How do we correct the tax reporting from W-2 to the deceased former employee to 1099-MISC to her spouse? 

Self-employed person/1099 contractor has a DB plan. The person contracted with one employer which no longer needed the services. The person provided no services and received no income for the year.

The plan document defines credited service as elapsed time. Does this person get credited service or not? Compensation was zero so we aren't concerned for benefit accruals but need to know if service can be credited for 415 service and participation.

My thought is that because the person did not provide any services that no service should be credited. I think this is different than if services were performed but expenses exceeded revenue resulted in zero net income/compensation, in which case I think you could/should credit service. 

I looked in the regulations but could not discern an answer, nor could I locate guidance elsewhere. Is my thinking correct/reasonable or flawed. Also, this is more than a one-year situation.

Thanks

An Employer is in the process of establishing a new single employer plan (401(k)) effective in 2023.  They will spin off (not terminate) from a PEP that they are currently in and transfer the assets from the PEP into the new plan.  They do not have a safe harbor provision in place in the PEP, but they would like to add a safe harbor provision to the new plan for 2023.  Is this permissible?  How would the ADP testing work for 2023, would they need to test separately in the PEP for the short period and correct via refunds / QNEC (assuming the test fails for the short period), or are we permitted to test the entire year under the new plan (and the safe harbor provisions, assuming this can be added to the new plan in 2023)?

Any input would be greatly appreciated.

Thank you very much.