I understand this is a complicated topic regarding Service Contract Act.

Our client about to engage in a contract that covered under SCA and asked us how this will impact the current 401k

My understanding is SCA makes employer to pay certain wage rate and fringe benefit ( health and welfare payments) to certain service employees.

And the employer has 2 options: either to pay cash or contribute to fringe benefit. If they pay cash, it will be subject to FICA tax and employer has to pay their portion??

"Two options for paying out H&W to your service employees:

1.      Pay H&W in the form of cash. With the changes in ACA, we are hearing from our benefits partners that cash in lieu of benefits can seem as an incentive to not enroll in organizational benefits and contradicts the ACA regulations. It is important to know that if you do pay H&W in the form of cash it must be paid as a separate line item on the pay stub clearly designated as H&W.  If you incorporate it into an employee’s normal wages it is not considered H&W pay.

2.      Contribute H&W to a 401k account. Your organization can contribute the monetary value into a 401k account and remain compliant with the regulations.  It is important that your 401k plan document is set up so that H&W contributions can begin immediately through immediate entry into the plan.  The immediate entry does not mean the employee can self-contribute to the 401k immediately; it means that they are set up with an individual account on your 401k Plan.  In addition, it is recommended that your plan clearly spell out that employer contributions are not eligible for any discretionary matches provided by the organization. Lastly, the employee should be informed of how to access his/her H&W funds.  "

If they pay cash: My questions are if they pay cash toward 401k plan, then how this will affect vesting?. Will this "employer contribution" 100% vested or based on current vesting schedule (I read somewhere that this is 100 vested)? How this "employer contribution" will affect that employee current 401k deferral? And I don't think this "employer contribution" is subject to any matching? 

So how the employer knows which fringe benefit to pick including group health insurance, life insurance, and a 401(k) savings plan? Can employer chooses whatever they like?

Thank you and I appreciate all the inputs.

If effective date of ESOP is 1/1/18 and service for vesting is measured from the effective date forward, how do you calculate the vesting for someone hired 2/9/16 under the elapsed time method?  From 2/9/17-2/8/18?

Can you prevent a disgruntled employee from participating in the company offered FSA plan was asked by a client who is having difficulty with an individual employee understanding the how the process of a Health Care Spending Account Debit Card works.  Additional information was requested for a debit card purchase and after four notices were sent out the card is shut off until the substantiation is received, the participant is now claiming his money is being held up and fails to realize the rules of the plan are being followed.  Any guidance would be greatly appreciated.

If designed to require no more than IRC 401(a)(9) requires, a retirement plan (other than an IRA) need not compel a distribution to a participant who is not a 5% owner until after "the employee retires."

Lacking a detailed rule about when for 401(a)(9) purposes an individual-account plan's participant "retires", many administrators treat severance-from-employment as the dividing line.

But is there any range in which someone who remains on the employer's roster as an employee works so little that she should be treated as retired to invoke a required beginning date?

For some examples, how about an employee who works:

20 days in one month (with no work in the other 11 months)?

one day every month?

a half-day every month?

one day each quarter-year?

a half-day each quarter-year?

(All these describe real situations.)

Is it good enough for 401(a)(9) purposes to treat an employee as not retired until a calendar year's W-2 wage report shows zero wages?

We have a client that is an S Corp. Census information from payroll co. reflected a salary for the owner. Bookkeeper said that the salary reflected was wrong because it contained share holder insurance premiums. Plan uses W-2 income.

Should these premiums be reflected in the  the compensation for 401k purposes? This plan has a SHNEC.

What are the pit falls of cross-testing a cash balance plan on a contribution / allocation rate basis? 

Is this not allowed?

Fact Pattern  - bear with me

Small law firm has two partners, two employees (NHCE). 

There is an existing 401(k) plan with a 3% Safe Harbor non-elective (will be amended to NHCE only for 2020). 

The earned income for the partners fluctuates a lot due to when they receive settlements from cases. In years where they have a lot, it would be super helpful to be able to make large contributions to the plans. I was thinking a contribution credit formula that increased the higher the compensation. Something like 100% of compensation in excess of $100,000, or $5,000, whichever is greater.

They are not opposed to doing large contributions for their NHCE. If they can be done into the 401(k) as SH and PS, that would be ideal, then they aren't committing to large contribution credits to the NHCE in the CB plan. 

Because of the ages of the partners and the NHCE, regular combined testing doesn't work well. Its okay, but one of the partners is on the younger side, and the main NHCE is older than both partners by 10+ years. The NHCE would get 2.5% contribution credit in the CB. 

I apologize, I am not an actuary and don't do a lot of work on DB plans. 

But I do plenty of rate group testing, 401(a)(4) etc in the DC world. So if I am testing the combined benefits can't I just take the (Safe Harbor + Profit Sharing + Cash Balance contribution credit) / Compensation = Rate

Then do my regular HCE NHCE rate group testing? 

One of our actuaries is thinking we would need to convert the contribution credit to the NRA annuity benefit, then convert back to present value, then use that amount combined with the SH and PS for testing. I understand his argument, but would prefer my simpler method if possible. 

The actuary is proposing just giving the NHCE a flat % of pay in the CB and avoiding this type of combined testing. But it would be much more flexible if we could customize the NHCE benefit each year since the partner's compensation changes can be quite extreme. It will be easier to do this after year end with a discretionary profit sharing contribution to the NHCE, than trying to amend the CB plan prospectively to adjust an NHCE benefit. 

Some things I've already thought about - but feel free to chime in:

415: The younger partner's CB benefit is limit because of his age

404: There should be plenty of $ available to give as profit sharing and safe harbor to the NHCE and still stay within the 6% deduction limit

I apologize if I am off my rocker - I was just thinking if I can cross-test a 401(k) plan on a benefits basis, why can't I cross test the other way, a DB plan on an allocation basis? 

Company was sold and plan was terminated as of 10/31/2018.  None of the participants have been paid out yet.    Plan has a calendar plan year.     Eligibility to receive an employer non-elective contribution is 1,000 hours and employed on PYE.    During 2018, Employer put money into a suspense account for allocation at year end.   

Since the plan terminated at 10/31/2018,  would I allocated to the employees still employed on 10/31/2018?   That was my first thought, but technically the PYE is still 12/31 but the employer did not exist at 12/31 and had no employees.  

Anyone have a cite or guidance on the feasibility or legality of "reclassifying" After-tax contributions as Roth deferrals? A client who claims they weren't aware that their document does not allow After-tax to be matched is balking at forfeiting match excesses and has asked if they can reclassify the After-tax as Roth so the participants can keep their match. I want to tell them NO but I can't find anything either in support of this or opposed to it.

We  have a 401(k) safe harbor plan that is top heavy for the first time in the 2018 plan year.  There are employees who only receive Davis Bacon prevailing wage contributions who have not met the eligibility requirements for any other portion of the plan  (including deferrals).  Client is making a Profit Sharing contribution this year, so top heavy waiver no longer applies.  Does the client need to provide Top Heavy minimum contributions to these DB employees? 

We have a 401(k) plan who's sponsor is part of a controlled group.  Company A sponsors the plan, and is the only one of the controlled group that does.

The pan has immediate entry for 401(k).  The plan is failing 410(b) coverage by the ratio test.  I do not believe the ABT is available as coverage uses the fail-safe provision.

What's my remedy?  Do I bring in one or more of the employees of the members other controlled group?  Companies that have not adopted the plan at all?

§1.410(b)-7   Definition of plan and rules governing plan disaggregation and aggregation.

(f) Section 403(b) plans. In determining whether a plan satisfies section 410(b), a plan subject to section 403(b)(12)(A)(i) is disregarded. However, in determining whether a plan subject to section 403(b)(12)(A)(i) satisfied section 410(b), plans that are not subject to section 403(b)(12)(A)(i) may be taken into account.

OK, so here is my question.  the 401(k) covers all of the HCE's and the 403b covers all of the NHCE's  The first sentence above seems to suggest that I should disregard the 403b PLAN.  Perhaps what this is saying is that if I disregard the PLAN, then what I have remaining is a bunch of nonexcludable NHCE's who are not benefitting even if they all get the same employer contribution?

I want to make sure I understand what this reg is telling me I can and cannot do (I don;t actually have this scenario!).

I guess what it is also telling me is that if need the average benefits test to pass coverage for the 401k plan i have to include all of the people covered by the 403b plan as zeroes?

we have a defined benefit plan with a normal retirement age of 65 and no early retirement age.  can the plan be amended currently to add a fully subsidized early retirement age of 50?  does the IRS restrict the use of a fully subsidized early retirement age that is below a certain age or would age 50 be acceptable?

for example, an employee age 45 participates for 5 years under the plan and terminates at age 50.  after the amendment is made, can the lump sum benefit for this individual be calculated unreduced and fully subsidized at age 50 as opposed to deferred from age 65?

What is the procedure for an employer to remit federal taxes withheld from a 401(k) distribution during the year?  Must the employer enroll with EFTPS and do it electronically or can a physical form be filed with the payment attached?  We realize that Form 945 can be filed at the end of the year with the payment if the total amount withheld throughout the year is less than $2,500, but it's very likely that amount will be exceeded, so we'd like to pay the withheld amount from the current distribution at this time.  Also, is there a deadline for when such a payment must be made?  All help is greatly appreciated.  

Having a discussion with a colleague regarding minimum participation under IRC Section 401(a)(26), the IRS memo-induced 0.5% accrual rate threshold and cash balance plans that use actual rate of return interest crediting rates (ROR ICR). 

HCE with comp of $260k and $13k contribution credit (5% of pay) in an ROR ICR plan has a 0.39% normal accrual rate due to negative return in 2018 and zero percent projected interest, causing the plan to fail 401(a)(26) if one applied the IRS memo as if it were law or regulation (which it is not), whereas I argue that in what facts and circumstances universe (which is the law and regulation) is a 5% annual credit not meaningful, and why should a one-year interest rate hiccup/blip turn a very meaningful credit into one that is not?

By that standard, every ROR ICR plan that does not have a contribution credit in excess of 6% for 40% or 50 employees would otherwise fail 401(a)(26) every year they experienced an investment loss and would be required to increase contribution credits. I find that ludicrous, and it ultimately creates a de facto (albeit indirect) interest credit floor so to speak, which you could not do directly because of the market ICR rules. So ROR is good, employee wins, ROR is bad, employee still wins - yes, that's kind of the DB premise, but it's not the market rate premise.

Thoughts from those with experience on ROR ICR plans and dealings with IRS on the issue, including the 0.5% accrual rate line in the sand.

Thanks

My apologies for interrupting a previous forum on another topic line.  I am currently trying to find a resolution to a current problem. During the month of August 2018 my father passed away ,he was collecting his social security benefits as well as his full pension of which all began during 2003 and of course ended during his death of August 2018.  He was employed by the city of New York as a New York City Hospital Police Officer.  His retirement pension is through NYCER, "New York City Employee Retirement.  My parents married in 1971 divorced in 2008. During August 2018 my mother was awarded a one time death benefit through my fathers pension retirement organization NYCER.  Thereafter, she was informed she would receive my fathers annuity funds and informed my mother that she was listed as his primary and only benificuary to collect his pension.  My mother was directed to complete some documents and to submit a death certificate.  Thereafter, she was notified she was not elegiable to collect my fathers pension nor was she entitled to my fathers remaining annuity funds because there divorced. NYCER is requesting a DRO of which my mother does not have.  There divorce was an uncontested divorce drawn up in the state of Florida by an attorney or my father who failed to include any and all of my fathers financial information regarding my fathers pension or his social security benefits he was collecting but remember my fathers pension is from New York City of which my mother resides in.  Can any thing be done about this?? At this present time NYCER continues to send letters regarding my fathers Annuity funds which has not been disbursed accordingly and there is NO administrator of his estate.  There are three surviving children including myself.  Please advise.  Thank you.

Looking for some thoughts here since the rules aren't 100% definitive.  If a plan is being spun-off into 2 separate plans and the existing one eventually terminating, could the spun off plans be considered "new" for purposes of filing for a determination letter?

Relatively simple situation. I have a separate interest qdro with the following facts:

* the qdro was issued at the participant's normal retirement date (assume exactly, it was close, not sure if a month off). 

* the alternate payee chose to commence benefits at the participant's normal retirement date (life annuity - no subsidy received in the traditional sense as far as early retirement is usually considered)

* the participant chose to continue working despite suspension of benefits. No actuarial increase is provided (benefit is frozen)

* said participant is now past RMD. The participant is looking to start benefits at age 74, and will receive the appropriate 401(a)(9) increase for starting past rmd

* During the time since NRD, the alternate payee has received benefits continuously, but the deferral period will reflect actuarially equivalent benefits for the participant only for the period after what would've been RBD if said participant had not been active

Question: since the plan is paying benefits to the alternate payee that it would not have paid without the issuance of the QDRO, has the participant forced himself inadvertently into paying for the alternate payee's benefit during the period between NRD and what would've been RBD via reduction of his benefit once he starts. 

That is, instead of receiving his share of the benefit increased for the period past typical RBD, is he required to receive that less an actuarial equivalent amount for benefits paid to the alternate payee?

This is a variation on a participant footing the bill for a qdro that allows the alt payee to get subsidized early retirement when a participant doesn't start, but instead of paying for a subsidy, the subsidy is seemingly a benefit reduction (negative subsidy) that he caused himself by continuing to work after NRD. 

The number of years we're talking about is about 6 1/2 to 7, so the adjustment would be significant. 

Good afternoon to all,

Our client's document says that unrelated rollover money can be withdrawn at any time, while for all other sources, the participant must be 59.5.

A participant in the plan with 6 figure unrelated rollover balance wants to withdraw money immediately for the downpayment on a new home.  She is literally a month away from turning 59.5.  I say that she needs to wait until her date of attainment of 59.5 to avoid the 10% penalty on her withdrawal.  

However, a colleague is speculating that because the funds originated in the retirement plan of a previous employer, she no longer works for that employer, and she left that employer after turning age 55, she shouldn't have to pay the 10% penalty. I think that could be true if she had left the money in the old employer's plan, but once she rolled it into her current employer's plan, she's subject to the penalty if she doesn't wait until she is literally 59.5.  I am never dead sure of anything, though, so I am asking...........

What say all of you?

Thank you as always for your input.

The Plan Sponsor failed to start loan payments timely because they did not understand the process at their new financial institution.  The financial institution said they would refinance the loans if the client filed the loan failures under VCP.  The VCP filing is 99% complete, but I have one question.

Plan loan interest rate is Prime + 2%.  When the original loans were issued, the loans were amortized with a 6.5% interest rate.  Under refinance, the interest rate is 7.5%.  

In addition to covering the cost of unpaid accrued interest during the non-payment period, should the employer also be responsible for covering the difference in the dollar value of the loan interest had the loans been paid timely vs. the higher interest rate?

401(k) plan defines compensation as compensation under section 3401(a).  An employee claimed exemption from withholding on Form W-4.  The box 1 of their W-2 shows zero, and the amounts listed under box 14 for informational purpose.  These amounts are wages paid for services performed by the employee.  Are these amounts considered plan compensation?  Thanks.