In our adoption agreement we exclude for deferral, match and employer discretionary contributions "all fringe benefits (cash and non-cash) . reimbursements or other expense allowances, moving expenses, deferred compensation, and welfare benefits.

I am new having just started in July and working with auditor- they have picked a sample who was paid short term disability for about half the year (2019) and are questioning why she did not get a match true-up. We are self insured and pay the employee STD through payroll. She did have  401(k) deferrals withheld on the STD pay and the plan was amended 1/1/2019 to exclude this from all plan contribution types;i.e 401(k), match and employer discretionary. The employer discretionary did include the STD pay for compensation purposes as well

What is meant by "welfare benefits"? Would employer paid STD pay be included in this welfare benefit exclusion? 

Much thanks!

Alexa

ps. 1 follow-up : we do exclude in another section of plan compensation "long term disability payments" but STD is not mentioned here

Hi

I was asked the following by one of my CPA's for 2019.

"I have a client whom who has two W-2s and whom who is allowed to make catch-up contributions on her 401(K) contributions.  On one W-2, she has made traditional contributions of $25,000 and on the other W-2, she has made Roth contributions of $25,000.  Since she is limited to the $25,000, can she just have the money distributed to her in 2020 and have a 1099-R prepared"

Since one is deductible and the other is after taxes, how is this handled/corrected? I believe it is all for 2020 but which deferral is to be corrected?

Thank you for your comments.

Can I set up  a new profit sharing only Plan effective 10/1/2020, and then have the 401(k) and SH Nonelective effective 11/1/2020?  This would ensure that my plan year is at least 3 months.

I bleeive the answer is no.  So  many articles that say "the plan year still must be at least 3 months" are not specific enough, and really the same old requirement that CODA must be effective for 3 months still applies.  And any the SECURE Act amends the statutes, and it is the reg that includes the 3 month minimum.

Anyway, just want to make sure we are all on the same page that in order for a new plan to be a safe harbor, it must be established and accepting 401k by 10/1.

All I can see is fog today.

Employee enters calendar year plan on 7/1.

401(k) limit remains the max (based on age) as long as the pay supports it within the partial year of participation 7/1-12/31

PS limit - I believe it also remains the max as long as the pay supports it within the partial year of participation?  They Comp Limit would also not be prorated in the participation period.  it's just when there is a short fiscal year that Comp and 415 are prorated?

Just too foggy today to recall.

I have a client that offers group health insurance to its employees.  The employer contributes up to $500 per month toward the cost of the benefit for each eligible employee.    One employee does not enroll in the group health plan because he is covered by his wife's group health plan through her employer.

The employer has decided they want to pay this employee the $500 benefit that he is "missing out on."  The employee and employer insist that this should be considered a non-taxable health insurance reimbursement.   Their argument is that all the other employees receive the $500 employer paid benefit non-taxable.  From everything I have read, that is wrong and it is considered  cash in lieu and is taxable to the employee on his W-2.     

Can anyone provide me with an authoritative source (IRS Notice, etc.) that addresses this and states that is should be taxable income to the employee (assuming I am correct)?

Thanks in advance!

Sorry, I'm not a health and welfare plan expert but I've come across a couple of situations recently that have me confused. 

In both, there has been a clear controlled group with at least 2 different companies set up and with different welfare benefits at the different companies.  In the first group, they offered the same health plan and 401(k) plan across different companies but the company with all the execs also had group life insurance, vision, disability, etc., some of which was partially paid through a group cafeteria plan.  Other companies in the group, however, did not offer welfare benefits beyond the group health but had folks, of course, participating in the cafeteria plan for health insurance premiums. 

In the second group, they offered a robust, highly-subsidized health plan to the one company with all the executives and longer term / permanent employees along with a full suite of other welfare plans.  The other company within the group, however, has only bare-bones group health plan with less employer contribution and no other welfare benefits.  Apparently that company often employees individuals on a full-time but less long-term / permanent basis.  Some individuals have been there years though.  And they do get to participate in the same group 401(k) plan (which is how I came to this issue) but not at all the same welfare plans (including no ability to participate in the health FSA under the cafeteria plan that the parent company offers).

Assuming the different medical plans at the two companies both pass ACA muster (which is probably questionable on affordability), surely these arrangements cannot pass the Section 125 tests?  When I asked about 125 testing though they all look like I'm from another planet.  (That doesn't surprise me as I know that testing often gets ignored but I'm curious how brokers are setting up such disparate benefit offerings without a concern over various testing issues.)  Am I missing something?  Thanks.

Client discovers that 1094's have not been filed since 2016. They want to come forward and file and pay any penalties, but hopefully negotiate them down if possible. (We estimate that if the IRS actually imposes the full penalty, the number will be in the low 6 figures.) 

Any thoughts on how to do this? Just file the forms and wait to see what happens? Or try to do some type of "submission"? Where would you even submit it? 

All ideas welcome!! Thanks in advance. 

I have a client with a DB plan who has decided to delay their contribution until 1/1/2021. Since there is an unpaid minimum contribution on line 11a, how would I answer line 11b about the reporting of missed contributions to the PBGC? I cannot find anything that provides an answer.

I have not dealt with 403(b) plans for at least 30 years.

We set up a corporate profit sharing plan for an employer who is a 501(c)(3) back in 2000; were told by the insurance agent, now known as a "financial advisor", at the time the client had an old 403(b) plan (an old Equitable contract that is no longer marketed, that they terminated and were going to roll over into this new profit sharing plan.

The client has been making a 3% contribution each year to the profit sharing plan.

The 401(b) was employee only, so no 5500s.  This was plan #001, which we were told was terminated.

I pulled the trust report from Equitable for 2019 for the profit sharing plan, and noticed  employee contributions for the first time, called the client who told me the old 403(b) is still active and those contributions should have been made to the old 403(b) annuity accounts.

I was about to suggest to the client that the plans be merged.  Since no 5500s were done or needed as there were no employer contributions, (IRS would have no record) a "silent" termination - ie rollover to plan #002 and show as a transfer in on From 5500-SF.

In so doing, however, I would need amend the profit sharing to a 401(k) going forward,  but the plan would need to be ADP tested or the employer 3% profit sharing contribution would need be the 3% SHNE with 100% vesting.

Currently the profit sharing is 100% after 2 years.

Any thoughts going forward???

Participant left employment July 2019 and is/was 60% vested.

Employer terminating the plan on November 1, 2020.

If this person takes a distribution next week, will they have to be 100% vested?

From the IRS website:

All affected participants become fully vested in their account balances on the date of the full or partial plan termination, regardless of the plan’s vesting schedule. (emphasis added)

So, the date of the Plan Termination is after the date he is taking the distribution.

Do you book ADP refunds as a liability on the 5500?

I have an auditor who insists on having the ADP refunds for 2019 booked as a payable on the 5500.

I've never done this. 

What do you guys do?

I'm hoping to get input on an atypical nonqualified plan design. Say you have a standard NQDC plan that allows for employee deferrals, employer contributions, etc. All distributions would be in a lump sum on the earliest of termination, death, disability, or change in control. The participant would have no control over investments in their account.

However, the amount of the payment would differ based on which event triggers the payment. Termination (for any reason), death, or disability would result in a payment of the participant's account plus a specified and reasonable rate of interest. But a change in control would result in a payment of the participant's account plus a rate of return based on the increase/decrease of the employer's stock over the period of the employee's participation in the plan.

So, for example, a participant is in the plan for five years and has an account balance of $100,000, then retires. The payment amount would be $100,000 with a prespecified interest rate of, say, 5% applied over the five years of participation.

But if the same participant is employed at a change in control, the payment amount would be $100,000 increased (or decreased) by the increase (or decrease) in the value of the employer's stock over the five years preceding the change in control. 

The 409A Handbook has an example in the anti-toggling section stating a "toggle" between amounts is compliant because it doesn't change the time or form of payment. I don't see anything else that immediately jumps out at me as impermissible, but would appreciate any thoughts.

Background: We have a brand new cross tested plan. For the 401(k) portion, the eligibility requirements are 21/ 1 YOS (1000 hours). However, the owners would like a special participation date for immediate participation for themselves (no employees in either adopter). This is a plan for two new adopting employers, and the business entities were established in 2019 and 2020 respectively. For one owner, he has been performing services and on payroll since 2019. For the other owner, he started performing services on 1/3 and will be on payroll 10/1 of this year. The document has a specified place for special participation dates, but I wasn't sure what the date should be.

My question is when can this special participation date be? Does it follow with when they started performing services for the business entity or when they started on payroll? In other words, with an owner who has performed services 1/3, but not on payroll until 10/1, what special participation date would I need to use?

Thanks!

Hi All,

New here.   About 4 months ago I took out a COVID related 401K hardship withdraw through my employer.    It was for $28,000.    I took a large pay cut and my wife lost her job.   It helped greatly but I worry about the future and would like to take a 2nd withdraw for the amount of $13,000.   It pains me to do it, but I want to be better safe than sorry.    My question is, is a second withdraw even possible?    I understand the max amount is $100,000 and my wife is still out of work and I am still at a lower wage.      I also totally understand all the tax repercussions involved in withdrawing the money early.    

I plan on talking to my employer about this, but was looking for a little outside input first.   

Hi

Looking into designing a new CB plan for an existing 401k plan and trying to determine if Joe is an HCE or not for 2020.

Joe was 50% owner in 2019 and received 75k in salary.

Joe terminated in 2020 (not informed about the hours yet but let's say over 500) and sold his share to the other owner on 5/15/2020.

The new plan will be effective 1/1/2020 but adopted in November 2020. The val date will EOY.

As Joe was an HCE as of 1/1/2020, is he an HCE for all year by ownership?

Anything I am not thinking of? May be top 20% rule (not sure how it would apply here and effectively when).

Thank you

Large plan with late deposits in 2017.  Corrected in 2018 with applicable earnings deposited in 2018 and 5330 submitted in 2018. All done.  According to the 5500 directions, these late deposits go on the 2019 5500 for the last time, correct?  See below---

The total amount of the delinquent contributions must be included on line 10a for the year in which the contributions were delinquent and must be carried over and reported again on line 10a for each subsequent year (or on line 4a of Schedule H or I of the Form 5500 if not eligible to file the Form 5500-SF in the subsequent year) until the year after the violation has been fully corrected by payment of the late contributions and reimbursement of the plan for lost earnings or profits.

Brain freeze here:

Plan has dual elig. & entry, 3 months svc. & quarterly entry for deferrals, and 1 year, semi-annual entry for safe harbor match, safe harbor added in 2019.  Two scenarios need help on:

1. Former participant termed 2018, rehired 8/1/2020, was a participant for several years prior to 2018 termination.  Is this person eligible to defer and receive safe harbor immediately starting on rehire of 8/1/2020?
2. Similar scenario, but this EE has been working for several years, was eligible in past, but never wanted to defer, he now wants to.  Can he start deferring now in paydate 9/25/2020, and also receive the safe harbor for 9/25, or, would he have to wait till 1st paydate after 10/1 deferral entry and would he have to wait till 1/1/2021 to start receiving safe harbor?

Thanks in advance.  

Broker came to me with a question.  I have not been involved with the SIMPLE;  years ago, we heard the expression "SIMPLE plans for simple minds."

His client has a SIMPLE IRA with the 3% match.  Apparently the owner has already contributed more than the max deferral.

Can a SHM be set up to fund the difference for 2020 so the owner does not have to take any money back; or would the excess need be returned?

We have a plan where the owners did not contribute the full allowable safe harbor match for themselves for  2019 (4% basically).  They did max out deferrals for 2019.  We have always though that the owners SH  was just like everybody else - had to be trued up at year end.  they get K-1s..... Has that changed?  I was thinking I heard a discussion recently on a Relius webinar.  

With those recordkeepers and third-party administrators that offer a § 3(16) service for the service provider to decide claims for a distribution, including a hardship distribution:

(1)   Does an employer/administrator want a power to override the service provider’s decision?

(2)   Does a § 3(16) service provider want the employer/administrator to have such a power (even if the employer/administrator doesn’t want the power)?

BenefitsLink mavens, what’s your experience about what’s happening?