Good morning all

I was asked to perform a 110% test for a cash balance plan and see if an HCE is eligible for lump sum. I was told the client is eager to pay the lump sum.

I have done this many times for a defined benefit plan and never needed for a cash balance plan.

As I am not 100% sure, would one of the 2 methods be acceptable?

1- simply use the account balance (no 415 issue) as of distribution date (adjusted for interest credit if required) and compare to the assets as of the same date, or;

2- determine the AB's as of distribution date and convert them to lump sum using?? PVAB would be based on plan actuarial assumptions, 430 assumptions, 417e assumptions??

Any other methods that are acceptable that I am not thinking of?

Also, do you provide the client the method to choose as sometimes one method would allow lumpsum where another would not? I remember this discussion sometime ago and some well known actuaries had no issue to let the client decide between 430 and 417e options (it was for a defined benefit plan), as long as the ramifications were well explained and disclosed to the client.

Thank you all and have a great weekend.

Having a brain freeze...

4 participant plan - 2 HCEs (father, son) and 2 NHCEs (1 young, 1 older)

Plan provides 401k, 3%SHNEC and discretionary PS by rate group (ea ppt is in own)

The Gateway is 5%

QUESTION:

I would like to restructure for (a)4 testing: 1 HCE (father) and 1NHCE (younger) based on cross-testing and 1 HCE (son) and 1 NHCE (older) based on allocation rate testing. Each will pass coverage at 100%. Provided the C/T group passes (and it does) and the the Allocation Rate based group passes (proposed same % for HCE as NHCE),  the Plan passes, correct?  Am I forgetting anything?

Thank you.

Most of our SH plans are of the "maybe" variety.  Based on the SECURE Act, I took the position that the end of year 2020 notices did not need the maybe language and just said "yes it's a SH for 2020."

Then when I was writing a new plan for 2021, I automatically checked that option (maybe), but starting thinking mmmm, maybe I should just be saying "no" and amending retroactively.  I asked our doc provider, FTW, and they said (conservatively I think) that if we check the "maybe" box then we need to do the "maybe" notice.  But I'm thinking that this is just due to the fact that the docs are not amended yet for SECURE, and when those amendents are done, they will more or less fix everything (by eliminating the maybe option or exactly what, I'm not sure).

Notice 2020-86 says in A-10 "Accordingly, the retroactive plan amendment rules of § 1.401(k)-3(f) no longer apply for those plan years."  I think that means the maybe notice is defunct, dead, gone no matter what.

I hope this makes sense.  I'm not too worried about it but should I be (about not doing the maybe notice which the plan, as currently written, calls for)?

I had been told a long time ago that we needed to get an EIN# specific to the plan and not use the employers on the Form 5500.  Is this no longer the case?  One of our clients got a notice and it would appear that we should be using the employer's EIN# to file the Form 5500.

Sorry if it's a silly questions, just wanted to confirm.  Thanks in advance!

If a 401(k) uses a nonelective safe harbor, and an employee who is employed all year moves from an eligible to ineligible class during the year, is it permissible to say their SHNEC will only be based on their compensation earned while in the eligible category? 

For example, the participant starts off the year in an eligible class (Division A). They can defer, etc. Then on September 30 they move to an ineligible class (Division B). They are no longer eligible to defer as of moving to Division B on September 30. The plan says the SHNEC will only use their compensation while in an eligible class (Division A). Participant earned $100,000 total, $75,000 through September 30 and $25,000 from October 1 through December 31.

Can the SHNEC be based on $75,000?

Which over rules and why?

1. Quadro order stating alt. Payee, which I'd former spouse gets 50 percent.  Was signed in 2000. 

2. Ex in 2005  assigned no survivor benefits when he took retirement.

If quadro was legal and in place, in 2000, then ex can't waiver to no benefits in 2005, with order already in place.   Legal to do??

Plan manager over looked quadro. And let ex waiver. Legal?

Note in quadro, any changes to quadro must be reported to judge.

Plan never reported, 

Spouse found out, he changed plan benefit after he died,  legal?

Does anyone have any insight on whether interest is required on delayed (non-RASD) payments?  I've read Stephens v. U.S. Air, which suggests the courts (or at least the D.C. Court of Appeals) will require plans to pay interest on delayed payments.  However, I cannot find anything in the regulations that require it.  Advice from more seasoned professionals is appreciated.

11/1 - One of two named trustees terminates employment with Plan Sponsor

12/1 - Company informs us they have changed trustees

Questions:

• Can change in trustee amendment be backdated to 11/1?
• Does outgoing trustee who is no longer employed have to sign the change in trustee amendment? (last time this was done ten years ago the outgoing trustee signed).

Divorced,.  Both signed qualified Domestic order, accepted by plan and judge. All in order. In 2010.

Now, in 2016, ex filed for retirement, and instead of choosing. j&s,. He choose , no death benefits,. Even though he and plan manager knew,  about quadro.   

Question.  Does plan have to follow quadro already in place?

Or, follow what ex signed after quadro. 

Does ex  over ride judge's order.  I think not. And plan manager should follow judge order.

Does anyone have a summary of what changes are being made to documents for the upcoming required restatement?  I was searching but couldn't seem to find one.

Thanks!

I was wondering of what advice/suggestions you might have for me. I have a 401k plan client with a participant that went on leave April of 2019. His 401k loan payments were suspended then. By rule, these payments can be suspended for up to a year (April 2020). Employee is still sick and still on leave. Client has NOT defaulted loan yet (yikes, should have been defaulted April 2020).

All the employees of this company were affected by COVID from a financial standpoint. Some were furloughed, others had hours cut, etc...  This employee in question will eventually come back.  Client and I are trying to see if it would be wise/legal to use the CARES Act loan payment suspension relief to give this participant another year (from April 2020 when original one year suspension was over) maybe until April 2021 to begin payments again vs defaulting loan.  Any suggestions/thoughts? Tax on defaulted loan will obviously be a burden..

Suppose you had a small DB and PSP (each covers 5 participants). Suppose both of these plans have been in place for 8 years and the plans are expected to be active for 2 more years.

The business owner is 60 and assume all employees are nhces age 30. For 8 years all participants in the DB have received a benefit of 3% of average compensation. All employees have gotten a 7.5% contribution in the PSP for 8 years and the business owner has gotten $0. There has been light turnover in the past 8 years.

Now the business has experienced a windfall and will this year and next year. Clearly the business owner has received less than employees for the past 8 years.

Could the DB plan be amended to provide 15% of average pay for shareholders with the same 3% of average salary to remain for all non-shareholders? A fresh start would be used of course.

Then, is it possible to use accrued-to-date testing under this scenario?  The idea is that the business owner has not accrued that much on an average basis.

Thank you!

We have a plan with a plan year of 4/1/2019 - 3/31/2020.  One HCE exceeded the 402(g) limit for 2019 and we processed a refund for him (he is not catchup eligible yet).  In a calendar year plan, the excess for the HCE would be included in the ADP test since it is the year of deferral.  What happens with the off-calendar year plans? Do you just ignore the excess for ADP testing since the testing is for the plan year ending in 2020 and not the year of deferral (2019)? 

Hi to All,

We have a client who sold his business and ceased making payroll as of 10/06/2020.  He let us know that we needed to terminate his (calendar year) 401(k) plan and we made the termination date of the plan 10/06/2020, which means we had to prorate the 415 limit and thus the client will not get to put in the full amount for himself that he would have had if the plan had run up until 12/31/2020.  He is not happy with us and feels like his limitations are our fault.

Did we make a mistake in terminating the plan to coincide with the business being sold and ceasing to make payroll?  We have never done it any other way, but then we've never had a complaint before.

Could the plan have run through 12/31/2020?

Thank you in advance for your ideas.

This is a wacky situation -

Subsidiary had a 401(k) and filed Form 5500-EZ  correctly for many years through 2013. In 2014, Parent Company adopted a new ESOP with 401(k) features (KSOP) and merged Subsidiary 401(k) into KSOP. 

For 2014 - 2019 they continued to file Form 5500-EZ using the name of the prior 401(k) plan (instead of KSOP), listed Subsidiary as plan sponsor (instead of Parent Company), but correctly used Parent Company EIN. Participant information and financial information on the filings was KSOP information.  Clearly several issues here, including that the wrong form was used for the KSOP filings as ESOPs can't file a 5500-EZ and there was never a final filing for the 401(k).

So correct EIN, plan number, participant information and financial information. But wrong form filed and wrong plan name and sponsor name. 

Specific to the KSOP, would this be considered a failure to file 5500s for the affected years, or would the filings described above be considered incorrect (but filed) 5500s?  I would lean toward incorrect filings, but am unclear of the impact of filing a 5500-EZ instead of a 5500. 

Thank you.

Couldn't find a direct answer on this:

Company has a 3 year cliff vesting schedule.

Employee has been working at the company for 5 years.  Then, finally decides to enroll into the 401K... but he leaves 9 months later.

Is he fully  vested?  I think yes, because he has more than 3 full years of service... but wanted to get confirmation.  Thanks!

I just found out I lost my 401k company match since Sept because I have reached the IRS maximum on 9/4.

The details are:  I adjusted my 401k contribution in Q4 (24%) last year because I didn't put enough at the beginning. I did a calculation beginning of this year, it seems it'll be fine to use the large contribution. 

Then Company sent us WFH in Mar,  soon company had to reduce all employee payroll 20% for a few months, but we'll get back by Q3. So I did see the net pay number on my paystub increased in Sept , I though that's good thing,  company kept the words, and I need the money, so I didn't really dig into the details, or ask HR.  Well what happened, in Sept, I see my paycheck increased because there was no money into my 401K plan. I rolled to put 24%. Company match 6%. So I lost the 6%  since Sept till now. And HR told me that they'll start to match from 2021. Of course I adjusted the 24 down to 15 for 2021. I realized this is my fault, because I put too much into my 401k from Jan. I didn't realize I'll be over the IRS limit at all, which never happened before, and the consequences. Moreover company issued bonus (10%) in Apr, which brought a few K into my 401k plan too. I didn't consider that. 

It's a lesson I learned, my question here, is that normal practice for corporate HR, when employee reach IRS limit in the mid of year, HR administrator just stop the payment, and employee lose their company match without any notice, any possible way can get the company match? I was thinking the whole situation last nigh, even I found the paycheck change right away in Sept, at that point, I was basically not able to do anything. Right?   My company only offer 401K pre-tax match. I do my own Roth IRA through Vanguard. 

It's a very expensive lesson, not only lost the company match, I'm also pay higher tax. 

Thank you all for any suggestion, any input............. 

I've been asked to help with a QMAC calculation, though i've never done one.  Does the unrestricted up to 5% of comp apply to QMAC as i think it does for QNEC?  Can it be targeted or bottom up as long as it''s no more than 5% of comp?  Sorry, not sure where to start, and this seems a reasonable start.  Thanks.

Hi all

I was asked the following (hopefully asking correctly):

Owner of corporation got 20k salary in PPP monies and 50k salary from corporation thus 70k w-2 for 2020.

Wants ps deduction for 2020. Which amount can the corporation contribute and deduct for? 50k or 70k?

Thank you