New Plan Effective 1/1/2020 to be adopted by due date of business return, as per SECURE Act. For 2020 it will be a cross tested Profit Sharing with individual allocation rates; 2021 will include 401k with Safe Harbor in addition to the Profit Sharing. NRA is 65+5 Participation, The Plan will exclude service prior to its Effective Date for Vesting credit purposes (actual hours credited basis).

Owner wants to waive the eligibility waiting period as of the Plan's effective date (1/1/2020) for any employees actively employed on that date to enable his son to be a Participant (otherwise eligible 1/1/2021).  This will make for three (3) HCEs for 2020.  In doing so, there are four (4) NHCEs who will also be eligible as a result of this provision (note 1 of the 4 would otherwise be eligible as of 7/1/2020).  Concerns are as follows:

1. The owner is 79 years old and will of course be subject to Required Minimum Distributions. Though the entire contribution is receivable for 2020, would the owner be required to receive a 2021 Minimum Distribution based on his "12/31/2020 valance" including the receivables (up to his vested account balance, note NRA is 65+5P to avoid 100% vesting)?
2. The owner is able to maximize his Profit Sharing allocation (allocation rate is 100% of eligible pay) with a 5% Gateway to all NHCE staff.  This same 5% Gateway to all NHCE staff affords the son a PS allocation rate of about 18% and the third HCE (unrelated) a PS allocation rate of 3%. Total PS contribution is well within the deduction limitation, all rate groups and Average Benefits Test pass. Concern here is two (2) of the four (4) NHCEs that come in under the "eligibility waiver" are terminated during the 2020 Plan Year - since the Plan excludes service prior to the Plan Effective Date all Participants are zero vested. Is this a concern, or not since all receiving same 5% allocation rate?  One of the two who terminated is counted in the owner's and his son's Rate Group testing -does this impact the answer?  Both, of course, are in the ABT. Finally, I will add, even if past service is counted (actual hours 2019 and 2018), the referenced two who terminated would still be zero vested due to short service/insufficient hours.

Thank you.

The DOL published FAQs last week. For self funded medical and pharmacy plans, how are you going about preparing the comparative analysis and ensuring compliance? I understand that (at least the PBMs) are not planning on providing this analysis to plan sponsors. Are you looking to law firms, your H&W consultant or elsewhere to make sure the analysis is complete?

https://www.jdsupra.com/legalnews/show-your-work-faqs-on-non-quantitative-2551955/

401k plan currently allows for in-service distribution of rollover accounts only (i.e., plan states that distribution of "Rollover Account" maybe made at any time but no other in-service distributions are allowed other than hardship distributions).  Plan sponsor did not intend to allow in-service distributions of any amounts, including rollovers, and wants to eliminate this going forward.  Any anti-cut back issues?

Can someone please point me to the regulation that limits to the 6% deductibility on the Cash Balance?

Thanks!  I just have someone questioning me, so I wanted to show them the actual regulation

I have a 401k plan with a 3% safe harbor that has two participants that missed having deferrals for the entire 2020 year.  Their payroll department "turned them off" in the year prior because they hit the 402g limit and neglected to restart the deferrals in 2020.   

The issue is that one of the participant's would have had catch up deferrals while the other didn't.  Therefore, using the average deferral percentage to calculate the QNEC seems not appropriate for both.  I did find a newsletter online that indicated that a missed catch up should be "fixed" with a 50% QNEC.  Does anyone have any documentation that addresses this specifically?  It is not addressed in the EPCRS Fit it Guide

I have a small investment group (5 people) looking to start a new 401k plan.  They will want individual brokerage accounts for each participants.  In general, would they receive a 404a5 notice from the brokerage account company?  For example Schwab or Fidelity?  If not, would the prospectus' they receive as well as the contract information that details what their account fees are be enough to satisfy the content requirements of 404a5?

Thank you

Good Morning!

I received question about a loan that was suspended under the CARES Act by a qualified individual.  The loan was reamortized in January 2021 and one year was tacked on to their original final repayment date.  Lets say it was suspended upon initiation of the new loan with a 60 month term and once reamortized it was to be repaid over 72 months.  Participant made three monthly payments since January 2021 and has 69 months left.  He is looking to refinance the loan which is permitted under the plan.  The new replacement loan will be within the 50%/50,000 loan limit and HOLB.  Question - do you think they can refinance the loan (replacement loan with a new loan amount) over the 69 remaining months or are they subject to no more than 60 months on a non-principal residence loan because it is technically a new loan.  I keep going back and forth on it.  I would greatly appreciate any thoughts.

If an employer terminates a phantom stock arrangement before any triggering payout events and no payments are made as a result of the termination, is the employer still subject to the 3-year prohibition on adopting a new plan of a similar type under 1.409A-3(j)(4)(ix)(C)(5)? Thanks!

Hi all,

When should a previously forfeited ESOP balance be restored to an employee’s account?

Should the forfeited balance be restored upon return? After a year of service? Retroactively to the day of return after a year of service? 

I’ve confirmed with the Admin that it’s eligible for restoration. I left at 0% vested and my entire balance was forfeited. I returned a year and a half later, and have put in a full year of service since.

There is nothing specific that I can find in the document. It states, “Forfeitures: Some participants will terminate employment before they are fully vested in all of their Accounts. The portion of those Accounts that is not vested is called a “forfeiture.” Forfeited benefits will be used to pay Plan expenses or added to the Company’s contributions and allocated to eligible participants’ Accounts. If you are rehired by an Employer after your non-vested Account has been forfeited but before you have five consecutive one-year breaks in service, you are eligible to have the amount of the forfeiture restored to your Account. If you received a distribution of the vested portion of your Account, you must pay back to the Plan the amount of your distribution to have the forfeiture restored. Whether you repay the distribution or not, your prior vesting service will be counted for vesting your Account.”

The timing of the restoration makes a rather huge difference in this case, since the appreciation of the balance through 2020 is significant. I returned in February 2020 but my shares were only restored in March 2021. My thinking is since I didn’t receive a distribution at termination, I would have been fully “repayed” upon rehire and immediately eligible for restoration. 

If not specified in the document, is there a standard to follow? Is there somewhere else in the document I should check?

Would appreciate any experience or guidance around the special 15-day 204(h) notice period rather than the usual 45-day notice period when an amendment reducing benefits is adopted in connection with certain qualifying business transactions.  The "in connection with" language seems fairly broad and flexible but I cannot find any guidance on how broadly that is to be interpreted or applied.  For example, is it possible to freeze a plan using the special 15-day rule before a pending deal is signed up?  The deal is proceeding and expected to close soon and will expressly require that the seller freeze and terminate its cash balance plan but if the plan is not frozen using the 15-day rule (and thus in advance of closing) additional benefits will accrue for 2021.  Thanks.

Say an employer has a deferred comp agreement in place that provides a retired employee a fixed amount per year for a defined period. Call it $100,000 per years for the next five years. The employer wants to add an earnings component by basically converting the payments to a $500,000 "account balance" and allowing the retired employee to select investments. The amounts would be paid out in five installments over the next five years (same time and form as the original terms) but instead of being a fixed $100,000 per year, it would be 1/5 of the account balance in the first year, 1/4 in the second year, and so on.

Would this be simply a change of "amount" (and not a change in time or form) such that they could amend during the payment period without violating 409A?

If not, could they add a new earnings component that says on the date of the last fixed payment, the employer will pay the employee an additional amount equal to the (positive) earnings accruing on the total remaining benefit amount as if it were invested in, say, the S&P 500 over that period (and that the employee would forfeit any negative earnings)?

It seems like adding only an earnings component would generally be acceptable, but I'm having a hard time squaring it with the existing nonaccount balance status. Would appreciate any thoughts.

Has anyone looked at the Form 8881 to use for the Start Up Credit? What would you enter into line 6? Line 8 adds 5 and 6 and would seem to double the credit or what am I missing? Thanks

Good morning!  I have a new client that is currently maxing out a SEP, but also has the opportunity to start a Profit Sharing or Cash Balance Plan.  I don't believe the SEP has any bearing on the maximum contribution into the other plans, as the companies are unrelated, but I wanted to make sure someone could max out both a SEP and a Profit Sharing (or receive a contribution in a Cash Balance).

Thanks in advance!

The Internal Revenue Manual directs an Employee Plans examiner not to challenge a plan for failing to meet § 401(a)(9) if the plan’s administrator could not locate the distributee after a diligent search that included IRS-specified steps.  IRM 4.71.1.4(15)(d) https://www.irs.gov/irm/part4/irm_04-071-001

But that direction does not speak to a situation in which an individual-account (defined-contribution) retirement plan paid no involuntary minimum distribution because the plan’s administrator did not know the participant died.

Should the IRS relax strict adherence to § 401(a)(9) if the plan’s administrator shows it followed reasonable procedures to detect participants’ deaths?

What should those procedures be?

How often does it happen that no one has filed a claim within ten or eleven years after a participant’s death?

Several of our plans use the Empower platform and receive plan net credits.    Empower reports this as negative fees.     On the Form 5500-SF is it correct to report this as a negative expense under Administrative service providers?

A participant had a loan default in 2020 and there was a deemed distribution (he was still employed but not repaying the loan).

I understand that the deemed distribution amount needs to be shown on Line 8e on Form 5500 and the Ending Balance should not include that loan amount.

However, would you still include the amount of the deemed distribution on Line 10g ("Did the plan have any participant loans?")?

Thanks!

Can you go from a 3% non-elective Safe Harbor contribution to a flexible (maybe) 3% safe harbor contribution mid year? Would you need to provide a seperate notice for this under SECURE, or can you just make the change when writing the Cycle 3 document?

Would there be anything legally preventing a recordkeeper from commingling the assets of multiple Solo 401(k)s into a single trust account to achieve efficiencies for the all the individual plans? I know certain parts of ERISA do not apply to a Solo 401(k) plan, but I'm wondering if any of the sections that do apply would prohibit this practice?

2 Plans in a controlled group.  Plan A is a 6/30 year end, and Plan B is a 12/31 year end.

How do I determine who is an HCE?

It is my understanding that at one time - forfeitures were not allowed to be used to fund safe harbor contributions.  I can't find when/if that changed and is it ok to use forfs now to reduce the safe harbor contribution to employees.