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.

Hello all, thanks in advance for your help! I'm an IRS EP agent but I haven't worked very many DB cases, and I had a question about my dad's situation.

My dad worked for Albemarle Corp for several years.  They sponsored a DB plan through Merrill Lynch.

In 2017, he was filling out his benefit election form. Among several options he was given, he planned to elect 100% joint and contingent with 60 months certain. Payment was supposed to be $347.53 per month.

He never completed the paperwork (he was very disorganized and lost his birth certificate and was having trouble getting it from Vietnam. He passed away in August 2021 without ever filling out the paperwork.

After his death, I contacted Merrill Lynch and let them know my dad passed away, and I requested that they send a new benefit election package for my mom to fill out.

We got the package, and the only option now is a lifetime pension of $218.34 per month. Does that seem right that the monthly payment would be reduced so much? I still have a lot to learn about DB plans, but I thought the payment would be much higher. I know that options are supposed to be actuarially equivalent, but it just seems way off to me. 

Thanks in advance for your help!

Company A and Company B are part of a controlled group.  They each have their own 401(k) plans and TPA firms.  Company A's 401(k) plan can't pass coverage on its own (neither ratio or ABT).  The Plan's have been permissively aggregated for coverage and discrimination testing purposes in prior years.  I anticipate having to permissively aggregate the plans for the 2020 Plan Year as well although I don't have data for Company A as of the current date. 

Company A will have an ownership change in April (although it could be June or July).  Employees will terminate employment with Company A and become employees of Company C.  Company A would like to terminate their plan prior to the ownership change.

Does anyone have any suggestions in regards to the 2021 coverage test?  I anticipate the plan would not be able to pass coverage on its own (for the short plan year). 

Would I be able to use the 410(b) transition rules? Due to the ownership change, do I get a free pass on coverage testing?

Do I tell the client to wait and terminate the plan on 12/31/2021 so I can use permissive aggregation for the 2021 Plan Year?

Any suggestions would be helpful.  Thank you.

We have a Long Term Disability policy where the carrier will make contributions to an employees' 403(b) account in an amount equal to what the company was contributing before they started receiving disability benefits. Does this need to be noted somewhere in the 403(b) plan document? If so, what needs to be reflected?

I  have been contributing to OTRS since 1989. I plan to retire in 2025. I was married from 2006 to 2014. He was awarded half of the marital portion of my retirement.

When you work out the percentage it comes out to 10%. Is this calculated on my final pension amount? Shouldn't it be calculated on a lesser amount since I've gotten several considerable raises since my divorce?