Hi to all,

I am researching the elements that went into a top heavy test for a client for calendar 2018.

Two doctors, A and B, owned Happy Feet PA up until 08/12/2018, and maintained the Happy Feet PA 401(k) Plan.  They sold their practice in an asset sale to Better Feet, P.A. owned entirely by Dr. C.  Doctors A and B continue to be employed by Better Feet for the remainder of 2018.  Better Feet took over as the plan sponsor on the sale date, the plan was re-named Better Feet, P.A. 401(k) Plan, and Dr. C became the Trustee of the plan.

Because Better Feet already had a SIMPLE plan in 2018 for the Better Feet employees, with the advice of a local ERISA attorney, we amended and restated the Happy Feet plan such that only the former employees of the Happy Feet PA were eligible to participate in the Better Feet, P.A. 401(k) plan for the remainder of 2018.  At 01/01/2019, all of the employees of Better Feet, whether they used to be employed by Happy Feet or not, became eligible to participate in the plan and the SIMPLE plan was terminated.

So now, as to the Top Heavy test for 2018:  I am understanding what I read to say that because Dr. A and Dr. B were owners of the (previous)  plan sponsor "at any time during the relevant plan year" (2018), they are Key employees for purposes of the 2018 test.  We had initially hoped that perhaps they could somehow be considered non-Key because by the end of the year, they were not owners, the plan sponsor had changed, their company had been completely bought out by the new owner, etc.  

The reason it matters:  Running the Top Heavy test for 2018 with Drs. A and B as the Key employees results in the plan being Top Heavy for 2019.  This puts Dr. C in the unhappy position of now sponsoring a plan that is considered to be Top Heavy for 2019 even though he had nothing to do with it getting to be Top Heavy.  He and his own employees were not even eligible to participate in 2018.  That may be irrelevant.  This just may be a risk he was assumed to be taking when he agreed to sponsor and continue the Happy Feet 401(k) Plan when he bought out Happy Feet PA.

Am I missing anything that would change the test results?

Thank you as always.

Can a money purchase plan that has merged into a PS plan be allowed as part of an in-service withdrawal?

Good morning to all,

Here's a new one for us.  A client called this morning to say that she (owner of the company sponsoring the plan) wants the company to pay off an existing participant loan.  The participant happens to be her son who of course is Key and HCE by virtue of his relationship to his parents, the owners.  He is currently making payroll deducted payments but "the company" wants to pay his loan off for him in 4 quarterly installments beginning now.  She had already called John Hancock to find out if this was feasible and they told her to call us as the TPA.

Our first inclination is to say "Sure, why not?" but then we started wondering if this could somehow be construed by an auditor to be a contribution that went only to this one employee and was therefore discriminatory, or whether there is some other problem associated with it.

We have no idea how the company would eventually treat this for tax purposes.  It's not supposed to be a contribution to the plan of course.  It might be additional pay for the son, from which it appears that he's making the payments? This is an issue they have to work out with their CPA.

At a minimum, we should run a new amortization schedule for them to correspond to the payments they actually intend to make.

Any thoughts on how this could somehow get the client in trouble?

Thanks as always for your advice, thoughts, help.

So say an S-corp has a leveraged ESOP. Total value of shares is 1 million. $200,000 has been allocated to participants, the remaining $800,000 is in the suspense account.

When determining if the plan is top heavy, do you include the suspense account when determining the 60% figure? Or, is determined solely on the assets that have been allocated, and the suspense account is ignored?

I have a new plan for 2018 that is a safe harbor match. 

Owners spouse contributed to 401k but worked only 300 hours. 

The plan is based on a full year with an effective date of 1/1/18. 

If they want to do profit sharing, can they exclude her to keep the other non-key employees who worked less than 1000 hours from getting psp?

Want to see if I'm nuts. I'm looking at a situation where an employer has an ESOP, and a 401(k) plan. The 401(k) plan provides deferrals and a safe harbor match only. The census/testing results provided for the ESOP are confusing at best, but it APPEARS that the ESOP failed the 70% ratio test for coverage. It further appears that the ESOP was then permissively aggregated with the 401(k) to "allow" it to pass coverage.

Now, under the mandatory disaggregation rule in 1.410(b)-7(c)(2), it would appear that for coverage purposes, an ESOP plan (or portion of plan) can't be permissively aggregated even with another non-ESOP Profit Sharing plan (or portion of plan), (other than as provided in 54.4975-11(e)), much less with a 401(k) or 401(m). Am I missing something? Before checking with the TPA, I'd like to think I understand what I'm talking about...

Thanks.

We had a participant that was upset their Plan didn't allow for their ROTH IRA to be rolled over to their Retirement Plan. They had a ROTH 401(k) and didn't reply when their Plan was terminating and was rolled over to a ROTH IRA. I was wondering if this was an IRS Rule or something that can be allowed.

I have a highly compensated ineligible participant that deferred into the 401(k) Plan before her entry date.  EPCRS and the SCP say you can correct this by  a retroactive amendment if the participants are predominately NHCE's.  How do I correct it since this is a HCE?

I received a Schedule K-1 (form 1120S) for the owner and sole employee of a corporation. This K-1 includes no box 14a. It does however include box 17 code W, which has an amount of $50k. I'm waiting on a response from the client as to when exactly during the year he earned this W2 compensation of $50k as you normally shouldn't receive both K1 and W2 income. But at the risk of asking a dumb question, would this mean that the only compensation that would be taken into consideration for plan purposes would be the $50k in box 17W (plan’s definition of comp is W2)?

A participant in the cash balance plan refuses to cash his RMD.  He even sent the check back to the plan.  I am not sure how to proceed.  I know the IRS has issued guidance regarding missing participants with respect to uncashed RMDs, but in this case, we know of the participant, he just refuses to cash his check.

So, suppose that an s-corp ESOP has what I would consider (fairly standard?) language to permit the transfer of shares from the ESOP account to a "non-ESOP" account within the plan, in order to avoid a potential 409(p) failure.

Are there any tax implications of this, other than the fact that the shares so transferred will be subject to UBTI on their pro-rata share of the s-corp earnings?

I recently started a new job as benefits manager.   Our record keeper (a public company) states that their testing department typically reclassifies regular (non CU ) contributions AS catch up contributions in order to help our test results.    this is new to me....anyone ever seen/ heard of this?   any comments greatly appreciated!

I have a group of three companies all previously owned by the same family (three brothers, owning all three companies jointly), that have operated a single 401(k) Plan as a controlled group. Now they have sold 49% of one of these companies to an unrelated outside individual. They are asking if they now have the option to kick the 51% owned company out of the Plan. I believe they can, but also think the successor plan rule would apply since they maintained the 401(k) after the acquisition. Does anyone here have any thoughts?

Good morning to all,

I have been asked to research the following:  " Is it acceptable for salary deferrals to be funded well after the end of the plan year for self-employed individuals, i.e. sole proprietors. This is in the case of an ERISA plan, not a solo 401(k) plan. "

Your thoughts, opinions, and explanations of your practices are appreciated, as always.

I have a plan that could be one of the worst plans out there and now is interested in getting into compliance.

1. They did not notify employees of their right to participate. 

We did the QNEC calculations and they were deposited. What is reported on the 5330 and which line?

2. They have not deposited the full Top Heavy contribution in 5 years. What do I need to do? Which correction program should I use.

3. We went back until 2012 to correct late 401k deposits. I was not aware of the deposits being late because they appeared to be on time. (not egregiously late and they replied no to our late deposit question every year).

All of the deposits were done and we went back and did the earnings calculation. Needless to say a 5330 was not filed for prior years. What should I suggest they do?

Can someone tell me how to easily explain to a client what a revenue sharing payment is and how it's generated and paid to the TPA.  We receive basis points on assets but I  need to explain exactly how that affects the participant accounts.

HI:

Is 20% Mandatory Withholding required on QDRO's that are NOT Rolled Over to another Qualified Plan or an IRA.

Thanks for your help in advance.

DPSRich

I have a plan that is top heavy and is also making a safe harbor match and new comparability profit sharing contribution for 2018. All participants are receiving a safe harbor match contribution that is equal to at least 3% of their compensation, which counts towards satisfying the top heavy minimum contribution. 

I know that if a participant is only receiving a safe harbor matching contribution that they are not treated as "benefiting" for purposes of the gateway test. But if those safe harbor matching contributions are being used to satisfy the top heavy minimum contribution requirement, does that change how the safe harbor matching contributions are treated for gateway purposes?

We took over the admin of a plan that uses a safe harbor enhanced match formula. However, the document does not state the calculation period for the safe harbor match formula. The SPD and safe harbor notice just say participants will receive a match of 100% of 4% of compensation.  I asked the document provider to point to the calculation period and they provided the following sentence from the plan doc:

The Employer may make ADP Test Safe Harbor Contributions at the same time as it contributes Elective Deferrals or at any other time as permitted by law and regulation.

The document provider is adamant that the calculation period is not required to be in the safe harbor notice, SPD or adoption agreement. They say this language provides the most flexibility so the plan administrator can  decide at any point if the calculation will be done per pay-period, quarter, annually. It is a pre-approved plan document.

I have never seen a document silent on the safe harbor calculation period. Is this common?