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.

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.