I searched archives and couldn't find an answer, would have thought this group would have discussed at some point - maybe I didn't look long enough.

Combination CBP (1,000 hours for allocation) and PS 401k with SH match and individual groups with no allocation conditions for PS.

Two NHCEs terminated with less than 1,000 hours, so no CB allocation and no top-heavy (if applicable, but not TH yet anyway). The CB providers doing the testing think that the employer can declare zero PS for these two NHCEs and therefore, they are not benefiting under the (combined) plan with respect to 401(a) source and need not be provided the gateway allocation of 5%. Employer was given option to give these two 0% or 5%. 

The DC providers think that these two NHCEs are required to get the gateway because there are no allocation conditions. 

I am in the CB camp (no gateway). Regulations say gateway is required for employees benefiting under the "plan" and refers to 1.410(b)-3 for "benefiting" which says:

§ 1.410(b)-3 Employees and former employees who benefit under a plan.
(a) Employees benefiting under a plan -
(1) In general. Except as provided in paragraph (a)(2) of this section, an employee is treated as benefiting under a plan for a plan year if and only if for that plan year, in the case of a defined contribution plan, the employee receives an allocation taken into account under § 1.401(a)(4)-2(c)(2)(ii), or in the case of a defined benefit plan, the employee has an increase in a benefit accrued or treated as an accrued benefit under section 411(d)(6).

These two terminated NHCEs are not receiving an allocation. It is clear we cannot exclude them from coverage and nondiscrimination testing, even if hours are less than 500, because that is not the reason they do not benefit, the reason is that the employer (under the terms of the plan) decided that these individual allocation groups will not be given a profit sharing contribution. As long as coverage and nondiscrimination pass with these people included as zeroes (in the denominators only) I think we're good - and it isn't an issue as this is a fairly large plan.

Who is correct CB or DC providers and why, if anything different or additional from above regulation?

Thanks

A participant is seeking to transfer or rollover funds from the Thrift Savings Plan. Part of those funds consist of tax-exempt combat pay. I am not seeing any guidance indicating whether an employer-sponsored 401(k) plan can accept transfers or rollovers of tax-exempt funds.

If permissible, I think it would need to be separately accounted for as tax-exempt and properly reported as such upon distribution for 1099-R reporting and withholding purposes.

Am I missing guidance on this? Any ideas on permissibility and whether it's an eligible rollover distribution? Thanks.

A participant defers a portion of his salary in January until termination, and each month the deferral account is credited with 4% interest.  When FICA tax is paid at the end of the year (using the rule of convenience), does the amount subject to FICA include the original amount of salary deferred plus the interest accrued throughout the year, or is the amount subject to FICA only the original amount of salary deferred? 

I know this has been discussed before, but looking for an answer  without having to read through a bunch of regulations, etc. etc.  Plan has 2 partners, no EEs.  They both get a K-1. Is the limit based on 25% of their combined net/earned income, or is the limit based on 25% of their individual net/earned income? 

Thanks -- 

Hi,

I have a quick question about special testing rules for the ADP Test.

I understand that there are 2 ways to run the ADP Test for the Otherwise Excludable (OEX) Employees:

1) Early Participation Rule (where only OEX NHCEs are left out of the test)

2) Disaggregated Plans Testing Method (where all Non-OEX employees are tested together and all OEX employees are tested together)

In the ADP test, there are 4 HCEs, one of which is OEX. All HNCEs are non-OEX.

I believe he plan should be tested as follows:

1) Non-OEX HCEs tested together with Non-OEX NHCEs

2) 1 HCE OEX tested by himself because there are no OEX NHCEs - this portion of the plan should pass automatically because there are no OEX NHCEs

However, our testing software is testing all HCEs (even the 1 who is OEX) vs. NHCEs for the Otherwise Excludable test. I don't think that's correct as I think there should be a separate test for OEX employees because we're using the Disaggregated Plans Testing Method.

Do you agree?

One of our plans has a 3% safe harbor non-elective employer contribution.     The employer has yet to make the 2019 contribution.     Also the employer filed for bankruptcy in 2019.   Is there a penalty or other problem with this?    I know it's a failure to follow the plan document, but I'm not sure what the ramifications are.  

Any advice is appreciated.

I'm not entirely clear on this. Say in 2020, a SH Nonelective plan was amended to remove the SH. Now in 2021, the employer wants to reinstate the SH for 2020. This is ok. But, is the SH now required to be 4% (since it is retroactive to the prior year) or can it be 3%, since it is reinstating the 3% nonelective that already existed but for the prior amendment?

edited to remove an inconsistency in original post

Since 1979, the Teachers' Retirement System of the City of New York has administered a supplemental 403(b) plan. In error, the Department of Taxation and Finance treats the TRS 403(b) plan as a pension plan of local government.  Pensions of local government are exempt from the state income tax. The 403(b) plan is pre-tax.  Making distributions tax free changes the 403(b) contributions from being pre-tax to tax-free.  We all know there is no such such thing as a tax-free retirement plan.  See:  NY State Department of Taxation and Finance publication 36 p.12.  

What say you?

Need Help!!!

I’m working on a plan and client wants to max out 1 owner (audit plan).

Plan demographics as follows:

Total Employees- 210

Participants – 110 (who has entry date)

Plan entry requirements: 18 age, 1 year of service, Semi-Annual Entry

Profit Sharing Method: New Comparability/ Grouping

 Allocation condition to get Profit Sharing:  Last day and 1,000 working hours.

Plan is not TOP HEAVY for 2020 Plan Year.

****Among 110 participants, 30 employees did not meet 1000 hours and few of them terminated before 12/31/2020.

Current Year’s contribution 2020: Deferral, Safe Harbor Match, Profit sharing (max owner, minimum % to pass others (no Safe Harbor Non-Elective contributions)

Here, Highest Key % - 10.11% (PS and Safe Harbor Match)

Question: Do I need to provide minimum gateway to 30 participates who did not fulfill last day and 1000 hours to pass new comparability test?

Thanks in advance!

If a plan adds voluntary after tax (VAT) to a plan, I understand it is tested under the ACP test.

What if it's a Safe Harbor plan?

My question is does the Safe Harbor Match get tested with it?

If a SHNEC is treated as an ACP SH, does that get tested under ACP with the VAT?

I understand that a SEP may exclude union employees, but may an employer have a SEP plan for non-union employees and another SEP plan for union employees? How about 2 SEP plans for 2 separate union groups with unique collective bargaining agreements?

Can SEP contributions be permissively aggregated for purposes of cross testing? I.e., Average Benefit Percentage Test, Average Benefit Test, and Gateway Minimum? The plan sponsor has both a SEP and a profit sharing plan in 2020 and the SEP is on an approved individually designed document.

Thank you in advance.

This may seem like a dumb question, but I am just wanting to make sure I understand something.

I have a Safe Harbor Non Elective plan (3%) who is not going to provide any Profit Sharing or Match this year, just the 3% contribution.  Will this plan automatically pass 401(a)(4) testing? 

I'm sort of having a brain fart.... I have a PS 401(k) plan that was adopted in Sept 2020, effective 1-1-20 for PS portion.  There was an employee who terminated in August (ie, prior to adoption of plan).  She had over 10 YOS, so she would be in the plan and receive PS, correct?  (They are doing New Comp, so she has to receive something in order to pass testing).

I think the answer is that she IS in the plan.  Thanks for indulging my loss of brain function today.

Hi

Did not have one of these in many years.

Calendar plan. BOY valuation. Amendment to increase benefit adopted before 12/31/2020 but after 1/1/2020.

Do they need to adopt some kind of amendment election?

Thanks

Hi - a colleague of mine (RIA Firm) asked me this question.  I read through some QKA materials but I didn't find anything.

Colleague has a client whose income is from real estate holdings, so all passive income, but wants to start a Solo 401(k).  The client knows they cannot contribute to a 401(k) because they have no W-2 income/earned income.  But they want to start a Solo 401(k) to roll large IRA's into the plan so they can begin doing backdoor Roth's on their personal money and dont have to deal with aggregation rules of the large IRA's.

My initial reaction is they cant start a 401(k) as they never have any intention of making personal or employer contributions to the plan (outside of rollovers), as they will not have any earned income to use.

I'm not sure where that thought comes from or what I read that leads me to believe it, but curious on other peoples thoughts.

Trying to figure out if K1 Income can be used towards a Profit Sharing Contributions?  We have a two partner 401k who pay themselves meager salaries limiting how much PS they can receive.  Question is can we use K1 Income?  Hope it is not an obvious question as I could not seem to find any older threads.  Thanks in advance for any advice

Doing a Profit Sharing.  The only reasonable way the test is passing is using the accrued to date method.  Contribution basis is obviously out, and the regular benefits basis is failing too.

The accrued to date method is passing.

But I want to make sure the compensation used is correct.

Does negative income (a loss) get used as part of the average?  Or do you use zero for those years?

Example:

Year 1: 100,000  Year 2: (50,000)  Year 3:  $100,000

Is my testing comp $50,000 or $66,667?

Woman owns half of an  S-Corp with husband.  Each takes $40,000 W2 income, defers $15,000.

Also owns partnership w/ husband (50-50).  Both have losses of ($150,000).  Each.

Because there is a controlled group, can they make the 401(k) deferral b/c it came from W2 wages?

Or are they out of luck, because the combined income is negative?

I represent a federal 401(a) plan that currently has an individually designed plan. The plan is interested in moving to a pre-approved plan document structure. Does anyone know which vendors have a pre-approved 401(a) plan document that they license for use? Many thanks.