Hello. 

Company A's business entity is partnership.  There are 6 owners of company A   Two of the partners' net earnings are negative before any calculations are made.  Profit sharing amount is determined for rank and file employees.  Do these owners also receive a share of the cost of the profit sharing (based on their ownership %)  taking their earned income to a greater negative amount?

Since there earned income  for plan purposes is negative, we are reflecting their comp as zero.  Should these two partners be included on the ADP/ACP test?

Under the 409A exemption for stock rights, an "option":

means the right or privilege of an individual to purchase stock from a corporation by virtue of an offer of the corporation....

If you have an otherwise exempt option (i.e., it meets all the substantive exemption requirements of nonqualified stock options) but the option is to purchase employer stock from the majority shareholder of the employer, do you still meet the 409A exemption? 

The definition in the 409A regs is carried over from Section 421. Also, Section 83 has rules governing the purchase of employer stock from another shareholder in connection with the optionee's performance of services for the employer. It treats the transaction as being routed through the employer for tax purposes. I see no cross-reference or carryover of a similar concept under the 409A regs.

Thoughts?

EDIT: On further reflection, because the tax treatment is already fixed under Section 83, could the option be issued directly from the employer, then the controlling shareholder could have the same number of his shares redeemed by the employer upon the optionee's exercise? That avoids dilution of the minority shareholders, which was the original goal. 

Issue 1.  Ineligible participation:  Plan sponsor allowed an ineligible employee to participate in the plan too early during 2017.  For whatever reason, the client does not want to retro-actively amend to correct this specific person's participation.   This plan processed a refund of the deferral and forfeiture of the affected employer match today, 10/9.  (Yes, today.  Don't get me started on that story.)

Issue 2. ADP-ACP refunds:  The plan is also tested; failed ADP-ACP (of course) and corrective refunds are being processed.  Again, it is October.  Obviously, well past 3/15.

12/31/2017-ending plan year...  Both issues occurred in the same tax year and being corrected in subsequent (current) year.  I am either rusty, brain-mushy, or both...  But, I cannot seem to recall and need a solid favor here, my friends.  Please provide a quick sanity check: Can we report both of these bad boys on one 5330...  Yay?  Nay? 

For any replies, please accept advanced thanks!

What is the difference between a VCP filing and VFCP filing? I understand one is for operational failures, and the other for fiduciary violations, but can they ever overlap? Are you ever required to file both?

We are the actuaries on a plan the IRS is reviewing to see if the plan meet's 401(a)(26) meaningful benefits. 

The IRS actuary is taking the position that meaningful benefits are determined by taking the end of year total accrued benefit, dividing it by years of credited service and then dividing by testing compensation.  The actuary then compared this result to see if it meets the "0.5% meaningful test".  

Using the accrued benefit seems contrary to our understanding of 401(a)(26).   All information we have on this points to using just the annual credit (as an annuity) and dividing by testing pay.  

Does anyone have any thoughts on this?  Also, has anyone else seen this interpretation by the IRS? 

Thank you.

Just wondering how everyone out here would view this:

Plan is a large employer.  There's a 50-on-5 match, payroll period basis.  Not safe harbor, and they do choose, operationally, to make the match deposits each week.

Everyone's deposits for 2017 were fine except somehow, an owner's missing one week's worth.  $375 in 401(k) deferrals and a $187.50 match.  (He's salaried and these amounts were consistent every week.)

If this were a small plan, they'd have the 7 business day safe harbor.  Since they are prompt with their deposits, there's at least some sort of argument that, "Hey, we *could* say one deposit was 30 weeks late.  Or we could say that the next 29 deposits were all 1 week late - but within 7 business days."

Anyway, that's not exactly where I'm going with this one - I would like to at least suggest that the fact that the guy's been getting match contributions all along, that those almost serve to "cover" the 401(k) amount due by the deadline for the deposit.

At no point during 2017, was his account underfunded relative to his payroll withholdings.  The plan sponsor has a requirement to keep pace with the funding of the deferrals, and not the match (which could be deposited up until tax filing day in 2018).

I suppose a potential snag is that if this "early money" went in before the paycheck that was missed, then it could be construed as accelerating funding of the plan.

Can you tell I'm trying to avoid reporting $375 on the 5500 and preparing a 5330?  :)
Thanks.

Our company allows medical (actually, all) deductions to go into arrearage when an employee is on an un-paid LOA.
I always recover the deductions in the same year, but now am being asked if we can spread these out over a longer period, which would move us into the new calendar year.
Somewhere in my brain is the belief that pre-tax deductions recovered in the next calendar year become taxable, but an hour of google-ing turned up no information.

Can someone please verify (or refute) this for me?

Thank you!

Two tax exempt organizations create an affiliation (their words) by combining service offerings. As part of the affiliation, they created a single board of directors which governs both organizations. The board is comprised of an equal number of members from each organization. I have reviewed the controlled group rules relating to control of directors/trustees and will make a referral to an attorney. However, I am curios if this is a straight forward issue. Since there is a single board is it clear a controlled group exists? They are telling me that since half the board is selected from each entity, neither organization has control over the the other. Therefore, they are stating the 80% control and/or common representation of directors/trustees is not applicable. 

Thoughts?

I have a 401(k) plan which utilizes a safe harbor matching contribution.  Prior to 1/1/2018, the eligibility for all contribution sources was date of hire.  The plan's entry dates prior to 1/1/2018 were date of hire.  Highly compensated employees are excluded from receiving a safe harbor matching contribution.

Effective 1/1/2018, the eligibility for safe harbor match was amended to 1 Year of Service.  The entry dates were amended to 1/1 and 7/1.

Unfortunately, it has been discovered the client has continued to use date of hire for eligibility and entry date purposes for the safe harbor matching contribution.

My question, can an amendment be done now to take the safe harbor matching contribution eligibility back to date of hire and the entry date back to date of hire for 2018?  For 2019, the plan would move forward with the 1 Year of Service requirement and dual entry dates.

The plan does have a discretionary profit sharing contribution component.  The eligibility is date of hire and the entry date is date of hire.  Vesting is 100% immediate for all contribution types.  The ineligible safe harbor matching contributions could be characterized.

Any thoughts would be appreciated.

Thank you.

Good Morning.  Participant received an overpayment from his account.  It was from his vested account, but it was an impermissible distribution due to his age.  Attempts have been made to get the funds back from the participant, but he claims to not have the ability to repay.  I understand from reading the appropriate sections of EPCRS that the Plan Sponsor or another person must contribute the amount back to the plan.  I know in some cases, another person is a person acting on behalf of the Plan Sponsor.  My question is - who is another person in this case?  The TPA has offered to make the plan whole as they were the one that approved the distribution.  Can the TPA cut a check to the Plan for the overpayment plus earnings? Is there ever an issue with the TPA or recordkeeper correcting an operational failure where the correction method is making the plan whole (assuming the TPA and/or recordkeeper clearly caused the error). 

I have an established 401k plan with a per payroll safe harbor match.  The owner has a control group of 5 companies, of which the largest/main company is the adopting ER.  The other 4 don't participate but we use their census for testing.

The contact approached us yesterday to see if we can add one of the other companies as an adopting ER ASAP.  Am I correct in assuming that because this is a safe harbor plan, they cannot do this for 2018 since it is already past October 1 (this is a 12/31 PYE)?

Thanks for your thoughts!

My client is replacing their current plan Recordkeeper and Trustee (MetLIfe) and switching to another company.  What documents do I need to prepare to effectuate that? Is it just resolutions regarding the plan? Do all participants have to approve this reconversion? Never done this before.

Thanks

This should be easy...

An employer has late deferral deposits in 2016 and deposits the lost earnings on all late 2016 deposits in 2017.  I am reporting the total of late deferrals on the 2016 & 2017 Form 5500-SF on line 10a.

Question -  Do you show the "lost earnings" deposit in 2017 as earnings on the Form 5500-SF OR do you show it as an employer contribution?  I have always shown as an employer contribution because it is a deductible contribution; however, I have reason to question this method.  What do you do?

Thanks!

Plan recently discovered 5 or 6 people who had requested deferral percentage reductions that were never implemented. Most are short term, but others go back several years. None of the participants has noticed the error.

Client wants to notify the participants and ask them if they want to take the money out of the plan (including match and income) or leave it in. Not sure that this is permissible. Haven't run into this particular failure before, and cannot find anything terribly helpful in EPCRS. My inclination would be to forfeit all if they want to correct, and pay the lost salary outside of the plan.  

If a legitimate "change in status" takes place during the plan year, is there a specific timeframe by which the employee must make a change in election? I'm looking at a document that was done in 2008, and it doesn't specifically address this question. I presume it must be prospective only, and can't be retroactive?

As an aside, does a new union contract effective during the plan year constitute a "change in status?" Seems like it should if it changes the level of benefits/reimbursement with regard to health insurance, and maybe this is contemplated under 1.125-4(f), but it isn't specifically listed under 1.125-4(c)... and could a health FSA election be changed in this circumstance? I'm thinking I saw somewhere that it can't.

Thanks.

K plan sponsor has bonus plan that says to execs: Every year, if you make more than $275k, I will give you a bonus equal to your Box 1 W-2, without any limit, times 6%, minus the 402(g) limit, and then all that multiplied by $.50. So if I make $400k, my bonus is $2,750, which is $24,000 (6% of $400k), minus $18,500, or $5,500, times $.50. The intent is basically to make up for the missed match based on the statutory limits, which it does not do perfectly, but anyway, that's what they do.

But then they also say that to get the bonus you have to have deferred into the plan, at least something. They do not penalize execs who defer less than the limit (e.g., defer $10,000), but they do exclude you if you deferred $0.

This violates the anti-conditioning rule of Treas. reg. 1.401(k)-1(e)(6)(ii), right? And the result would be the same if instead of only excluding those who did $0, they reduced the product of 6% times comp (e.g., the $24,000 in my example) by the sum of the 402(g) limit and the difference between the 402(g) limit and what the exec actually contributed (but not to where your bonus was negative, obviously), which would seem more rational than just basing it on whether the exec did or did not defer at all.

If this is a violation of the anticonditioning rule, what is the fix under EPCRS other than stopping it? Seems hard to believe the IRS would say you have to go back to all the folks you excluded and pay them the bonus they would have received if the employer had not conditioned payment of it on 401(k) participation, which is the only correction I can think of that would put folks in the position they would have been in but for the violation.

We have two issues with our annual bonus plan for management: 

First, the bonuses are going to be lower than they would have been due to the negative, unexpected impact of tax reform.   We want to calculate bonuses without taking into account his impact.

Second, we have individual and project objectives, because people have been focusing on project objectives, their individual objectives are going to be down. We want them focusing on project objectives, so we don't want them to be punished and would just like to pay out individual objectives at 100%. 

I'm worried about three things, and would like to know if you have any thoughts/concerns on my worries or any other thoughts and concerns. 

1) The plan doesn't give us the ability to adjust for tax reform (we have built in ability to adjust for other things, just not for this).

2) ISS doesn't like discretionary awards. 

3) We're worried backing out the negative impact of taxes will blow 162(m) for one employee. 

Thanks in advance!

An IRS agent wants an EZ filer to change to full 5500 filing with schedules, because sole participant takes RMD and has non-standard asset (private loan).  I don't see that in the instructions for 5500EZ.  Any authority for this request?

If a plan sponsor with a calendar year DB plan is located in a covered disaster area for Hurricane Florence, their 5500 filing deadline is January 31, 2019.

Is the minimum funding deadline also extended past September 15, 2018?

Client has 26 pay periods per year, resulting in two months (Mar & Aug) having three pay dates.  The clients payroll system is unable to process voluntary benefits, including 401(k) deferrals on a 26 pay period basis (not sure why, just what I've been told).  As such, although there are 26 pay periods per year, deferrals for the retirement plan are pulled from only 24.  This fact has been widely communicated and is standard knowledge to employees.

Question: has anyone seen anything in the code that would prohibit this arrangement?  I'm slightly concerned for those employees who elect a % deferral, as their total deferrals for the year will be slightly less than the % they've selected due to the two additional pay periods not receiving any deferral withholding.

Thanks in advance for the assistance.