A 401(k) Safe Harbor Plan was terminated effective March 15, 2019.

In December 2019 the owner deposited $19,000 as salary deferrals into the plan.  She earns W-2 income, and those deferrals were reported on her 2019 W-2.

Because of the short plan year, and because the plan was not terminated as the result of economic loss or an acquisition, the plan lost its Safe Harbor status for the short plan year.  Further, the owner was the only employee who contributed salary deferrals to the Plan in 2019.

The owner would like to make a Profit Sharing contribution to the extent possible.

415 limit for 2019 is pro-rated to $11,666.67.

This whole series of events is scrambling my brain.

1.  Can we deposit $11,666.67 as Profit Sharing and treat the $19,000 in deferrals as an Excess Annual Addition?  In other words, moving her out of ADP test failure/Form 5330 territory into 415 violation territory, OR

2.  By virtue of having made the salary deferral contributions, is she no longer able to even consider a Profit Sharing contribution for 2019 because a 415 violation already exists?

3.  And if we go with 2., do we split her $19,000 refund into two pieces:  1) ADP test failure refund of $11,666.67 and prepare Form 5330, and 2) treat $7,333.33 as a 415 excess to be refunded?

Although I know there are other sticky issues going on here, my primary concerns for the moment are the questions I've posted above.

Thank you!

Two semi-related questions and I'm hoping someone out here can help.

Question #1 - a large plan fails ADP testing every year and dozens of HCEs take refunds.  In 2019 there was a matching contribution made every pay period.  Some of the match attributable to the refunded deferrals had to be forfeited.  My question - is the amount of match that was forfeited still a deductible contribution and do we count it towards the 25% deduction limit?

Question #2 - assume an employer calculates and deposits a match equal to 10% up to 100% of deferrals every pay period throughout 2019.  A mistake is made by payroll and too much match was deposited for one participant in 2019 - instead of receiving $1,000 match on $10,000 of deferrals she received $1,500 match.  The error is caught after the end of the year - January of 2020.  The excess $500 that was deposited is transferred-out of the participant's account and into the plan's forfeiture account which was then used to pay administrative fees.  Is this excess match tax-deductible for the employer in either 2019 or 2020? 

So, a Safe Harbor 401(k) plan amended out of Safe Harbor (match) a couple of weeks ago. Now they got a PPP loan and want to amend back in, for the next 8 weeks, then will probably want to amend out again.

I say no, but this stuff has been changing so fast that I wanted to make sure I haven't missed anything. 

I have a plan that fails 2019 APD testing and it is now after March 15.  Is it correct that the deadline for issuing refunds without an excise tax was pushed back?

There are 4 HCE’s all over age 50 and two NHCE’s.  The

The HCE’s deferred respectively

5000

5000

11000

12500

So none had 402(g) catch-up in 2019.

Is it permissible to do both a small QNEC for the two NHCE’s and still have the plan fail ADP testing – then do the corrective refunds but to the point where I can utilize ADP catch-up contributions to avoid having to issue refunds altogether. This is on an ASC volume submitter plan document and I don't see where it allows or does not allow a combination of corrective options.  

For 401a4 testing, we can do some exciting disaggregation of the participants to get groups with the most beneficial characteristics for testing purposes.  How much of that is applicable to ADP testing?  There's the standard excludable employee segregation that can be done, but I don't recall if we can go any further than that.  I've found some slide decks on testing from seminars I've gone to (and online) but none have mentioned it so far, which is leading me to think that it's not a thing... or do I just need to keep digging?  Anyone have a direction to point me in?  Thanks.

After reviewing the KETRA safe harbor guidance in IRS Notice 2005-92, it seems that, as a practical matter, the "one year" delay permitted under the CARES Act winds up as a practical matter to be more like 9 months.   But for the difference in the period of time for which payments can be suspended (August 25, 2005 to December 31, 2006 in the case of KETRA vs. March 27, 2020 to December 31, 2020 in the case of CARES), the loan repayment relief is formulated in exactly the same way – both call for the due dates of any payments occurring during the specified period to be delayed “for one year.”  In the example in 2005-29, the participant ultimately ceases making any payments for more than one year, but that seems to be a function of the fact that the employer in the example acted to take advantage of loan repayment suspension for 13 of the 16-ish months such relief was available under KETRA, rather than the fact the suspension is described in KETRA as being delayed “for one year.”  (The implication is that if the employer in the example had waited until sometime in 2006 to act, the participant would have had his or her payments suspended for less than 12 months.)  In the text of the 2005-92, the Service indicates that as part of the safe harbor approach “loan repayments must resume upon the end of the suspension period….”  Consistent with that, in the example, loan payments resume on January 1, 2007.   Consequently, I'm thinking in the case of a CARES Act loan extension, loan repayments would resume in January of 2021.  Meaning participants, at most, would have gotten a 9-month break on repayments.  Does that seem right or am I missing something?

I wanted to confirm that I researched this correctly.  in 401k plans, self-employed individuals can make employee contributions up to the due date of their personal tax return, including extensions, which could mean a 2019 calendar year 401k contribution can be deposited as late as 10/15/20.

But if the same employee/employer has a SIMPLE IRA, the employee contribution deadline is 30 days after PYE?  From the IRS website is below.  So my conclusion is that different timing deadlines apply whether a SIMPLE or not?

Also, does the coronavirus relief change anything for SIMPLE IRA employee contributions?

Thank you

When must I deposit the salary reduction contributions?

You must deposit employees’ salary reduction contributions to their SIMPLE IRAs within 30 days after the end of the month in which the amounts would otherwise have been payable to the employees in cash, according to IRS rules (IRC section 408(p)(5)(A)(i)). For self-employed persons with no common-law employees, the latest date for depositing salary reduction contributions for a calendar year is 30 days after the end of the year, or January 30th.

The Department of Labor rule for deposit of the salary reduction contributions may be stricter. They do have a 7 business day safe harbor rule.

I have a small non-profit client, they have a DB plan, and they are now out of business, done. The lockdown has ended all their activities that generate revenue.  They won't be able to operate in an extended "social distancing" environment either.  The DB plan has been frozen for several years with just 3 participants, they were about one year away from being fully funded to the plan termination liability, but with the market drop and the lockdown, there will be no more contributions and the plan is underfunded.  They will need to file a distress termination.  All benefits are well under the guaranteed benefit amount. 

Any recent experiences with distress terminations?  The last one I'm familiar with in the early 2000s did not ever get resolved, PBGC did not do anything, the plan eventually ran out of money paying fees and no participants ever received any plan benefits.   I'd like to be able to tell the board members (who are all volunteers) what to expect. 

My understanding is that the extension of the deadline for Required Minimum Contributions until 1/1/2021 is only for defined benefit plans and does not include money purchase pension plans.

Am I correct?

I personally would not consider a "length of service" bonus paid to be a taxable fringe benefit but I am encountering a plan where it was treated as a safe harbor comp exclusion taxable fringe benefit. To add a little more color, people who have been with the company 0-5 years to get nothing, between 5 and 10 get 1,000, between 10 and 15 get 2,000, etc. 

This is all the more important for this plan because it is a Safe Harbor Plan, and I'm tying to determine if the definition meets a 414s safe harbor definition of compensation.

I guess it falls squarely within a gray area, but in such cases I would lean towards the more conservative.  what do y'all think?

Curious as to how this is handled in most plans - specifically, tax exempt plans with no Rabbi trust. Some plans allow participants to direct "their' account (although of course it is employer money) and others don't. 

When it comes time for the participant to elect a distribution, and they choose "substantially equal" monthly installments, do the plans you see:

A. Take the account balance at the time of distribution, divide by the number of months, and pay a fixed payment - interest or losses on the funds absorbed by the employer.

B. Still allow the participant to have investment control, and the "substantially equal" payments can fluctuate with the underlying market value?

C. Other?

I've only seen "A" but I don't see many 457 plans.

We have a PR plan that only uses base pay for their definition of compensation.  So they have excluded comp.  Does this require 414s testing?  Does it matter if it is dual qualified? Do you have the PR code reference?

My understanding is that, for valuation purposes, accrued dividends are not included in the market value of assets. Is that correct?

Thanks very much.

Hello - 

I have an instance in which an employee met their annual limit for 401k, but the payroll was configured incorrectly and it deferred once more beyond the annual limit. RK says 402(g), but with the market how it is, it doesn't seem fair the employee would take a loss on their excess distribution since it was employer's mistake. Is there an alternate solution? I was thinking about reversing out the excess deferral plus earnings/losses through the plan and reversing the deduction through payroll so it's taxed properly for the employee. Any advice is appreciated.

For small sized TPAs, what kind of backup material, if any, are you keeping on file to support your PPP need for the loan application?  Ours was approved but we are wanting to be sure that we are able to prove that it was needed.

Can a plan sponsor adopt the special distribution under the CARES Act and offer the benefit only to terminated employees? The plan sponsor wants to avoid having a host of active employees taking advantage of the benefit. And what about employees terminated participants who have taken pre-59.5 distributions - are they going to avoid the 10% penalty if the plan sponsor does not amend the plan for CARES Act benefits?

I know they left the distribution rules somewhat vague, but here's the situation we are trying to determine if someone qualifies for a loan:

Participant's father passed away due to COVID and the member is seeking a loan to pay for the funeral.  We know the participant and spouse have not lost any pay due to the pandemic (and may actually be making increased salary due to hazard pay).  So, would paying for the funeral qualify?  Curious as to others thoughts.

Thanks in advance!

I have a few questions.

1.  Is the CARES Act RMD waiver an optional or required provision for plan sponsors?  

2.  Does the plan sponsor need to amend their plan document to allow the waivers?

3.  We have an 80 year old employee that retired on 12/31/2019.  My understanding was that she was exempt from the RMD under the "still working" exception until she retired.  Now, she should have had her first RMD by 4/1/2020 (which still hasn't occurred).  If she had worked on 1/1/2020, her first RMD wouldn't have been required until 4/1/2021 (notwithstanding the CARES Act).  So I believe we are late in processing this RMD, correct?  Do we need to process this ASAP?  Does she have rollover options as part of the CARES Act?

Thanks for any thoughts.

After sitting in on quite a number of webinars including with the ERISApedia folks, I believe I have it correct with regard to the COVID loan repay suspensions but one can never be sure.

Participant works for a dental office.  The majority of the office is closed but said participant is, at least at this time, being paid full pay.  Participant's spouse had hours reduced and now his Company has completely shut down and let everyone go.  Participant would like to defer loan repays because husband is now not working at all.  Is it correct to say that this participant would NOT be a qualified participant under the COVID rules in order to defer her loan repays?