A law office has two partners, and a new associate who is in his late 30s.  3 NHCE staff are in their 20s and 60s.  The new associate, who is a go-getter, got a lousy Profit Sharing contribution for 201, and was unable to benefit in the Cash Balance Plan.  He is unhappy with this outcome.

The partners want to keep him happy.  In terms of plan design, could we:

• Exclude the new associate from the CB plan (he isn't benefiting anyway).
• Amend the DC plan to exclude the partners, and change from a cross tested allocation to a design based safe harbor, such as an integrated allocation, so that the young associate can get a larger allocation in the DC plan.

If we were to do this, must we still combine the plans for 401(a)(4), or is the DC free from that requirement because it isn't subject to 401(a)(4), and the other HCEs aren't benefiting in that plan?

In other words, there is no crossover between the two plans where HCEs are concerned, so does this give us some wiggle room for the young associate?  

By the way, the associate is not Key.

Thanks!

Let's say a plan does not allow for in-service. Also, the plan document states that there is an exception for non-owners who are still employed (that they don't have to take an RMD until separated from service). I have two questions:

1) Can a non-owner (who is over 70 1/2) still elect to take an RMD even though he's not terminated? Meaning does that provision give an option for the non-owner to take an RMD or wait until terminated, OR is it a requirement to wait until terminated.

2) If the answer to Question 1 is "yes", can he stop the RMDs at any time after starting them or does he have to keep taking RMDs once he takes the first one?

Thanks.

Company X sponsors a calendar year-end safe harbor 401k. As of July 31, Company Z is buying Company X. More specifically, Z is buying the assets of X; it is an asset sale. X's employees will then go to work for Z.

If X terminates its 401k as of July 31, does it still get safe harbor protection for the final, short plan year? Normally, if safe harbor is discontinued during the year, then no safe harbor protection is given for that year. But if a company is purchased, then an exception is granted. Does this exception extend to an asset sale?

The sponsor has a plan year with fiscal year end of 6/30.

Let's say that this is the scenario:

1/1/2016 to 6/30/2016 - The owner deferred $9,000

7/1/2016 - 12/31/2016 - The owner deferred $15,000

1/1/2017 - 6/30/2017 - The owner deferred $12,000

The plan started on 1/1/2016 and there were no deferrals before that. Let's say the owner is catch up eligible and we're running the test for plan year 7/1/2016 to 6/30/2017.

The plan failed ADP test for the plan year ending 6/30/2016 and $1,500 had to be re-characterized as catch up.

For plan year ending 6/30/2017, the plan failed the ADP test again. The question is, what is the catch up limit for this plan year that can be used to re-characterize the deferrals for the owner. The owner deferred $15,000 + $12,000 = $27,000 for plan year ending 6/30/2017, but how would that show up in the failed ADP test?

A pension plan, subject to IRC 412 provided a timely 204(h) notice in January 2018 stating the plan will be frozen, no more benefit accruals, effective March 31, 2018. The amendment was provided to the employer at the same time with a March 31, 2018 effective date. We just received the signed amendment back, and it was not executed until May 10, 2018.

How is this amendment treated? As freezing the plan on its date of execution, May 10, 2018? Or is the amendment treated as not in effect? What additional action should be taken?

We have two loans that were taken with an incorrect interest rate, the plan uses the prime rate plus 1%. The prime rate had changed but the loans were taken at the old loan rate. I am looking for a correction procedure to fix the loans in question but cannot find one. Do we need to re-amortize these loans at the correct rate? Any assistance would be great.

415 Limits:

(e) Limitation year for individuals on whose behalf section 403(b) annuity contracts have been purchased. The limitation year of an individual on whose behalf a section 403(b) annuity contract has been purchased by an employer is determined in the following manner.

(1) If the individual is not in control of any employer (within the meaning of §1.415(f)-1(f)(2)(ii)), the limitation year is the calendar year. However, the individual may elect to change the limitation year to another twelve-month period. To do this, the individual must attach a statement to his or her income tax return filed for the taxable year in which the change is made. 

Has anyone ever filed such a statement?

Employer sponsors two plans – one is a cross-tested profit sharing plan with a 1-year service requirement; the other plan is a 401(k) plan with immediate entry.  Each plan can pass coverage testing independently and the profit sharing plan can pass 401(a)(4) testing with and without including deferrals.

 The PS plan is top-heavy with key employees participating.  The 401(k) plan is not top-heavy since key employees do not make deferrals and do not have account balances in the plan; however the key employees are not specifically excluded from participation.

 Since the 401(k) plan does not specifically exclude key employees from participation must the plans be aggregated for top-heavy purposes thus requiring top-heavy / minimum gateway contributions for employees with less than one year of service?  If so, would amending the 401(k) plan to exclude keys employees from participation change the answer?

Are they any foreseeable issues with removing a Roth elective deferral option from a 401k plan?  

VFCP filing will be prepared for overcharged participant fees to participants and overcharged fees to plan sponsor as a result of systematic error.  Once the principal amount and lost earnings are restored to the plan, does the plan sponsor also have to amend the Form 5500 for prior years? 

Overcharged fees are approximately $50,000 and the error goes back to 2014.

Good morning to all!

We have a plan where there are two Key employees as identified by our software and they both surprise us in how they were handled.

The first one was already HCE in 2016 but not Key, by virtue of his salary.  He does not own any stock in the company.  In 2017 he became the President of the company.  The software identifies him as a Key employee in 2017 and we thought it would be 2018 before he would be considered a Key employee.

The second employee was Key already but died in 2017 and his account balance was distributed before 12/31/2017.  The software put his distribution in the account balance column as a negative number and subtracted it from the President's account balance to get a net difference for the Key employees' balances for the year.

To be clear:  President has let's say $200,000 which is considered a Key balance, to our surprise, and deceased person's distribution of his $10,000 account balance is picked up as a negative number in the test, so the net Key balances on the Top Heavy Test are $190,000.

Does this seem normal to any of you?

Thanks in advance for any advice.

An employee of a sponsor of a 401(k) plan fraudulently caused deposits, in excess of what was deferred, to be made for the employee and several others in a 401(k) plan.  Now that this has been discovered, the question arises whether these additional contribution could be returned to the sponsor under ERISA §403(c)(2), mistake of fact.

This occurred in 2017 so we are within the one-year time constraint.  Thoughts?

Based on the CPI value released today (and using the values for Mar-Apr-May)

the rounded/actual limit at the moment should be:

A client with a controlled group of companies recently created a new company and transferred several plan participants to the new company. These employees were allowed to continue to participate, although the new company is not an adopting employer.

The document specifies that "an individual who becomes employed by the Employer in a transaction between the Employer and another entity that is a stock or asset acquisition, merger, or other similar transaction involving a change in the employer of the employees of the trade or business shall not become eligible to participate in the Plan until the Plan Sponsor specifically authorizes such participation."

We've been advised that this must either be corrected with a VCP filing, or by returning the ineligible contributions. I'm wondering why this couldn't be self-corrected with a retroactive amendment under the "Early inclusion of Otherwise Eligible Employee Failure" .

Meanwhile, the client continues to withhold deferrals and is not ready to make changes to the plan yet....

ER stock held in KSOP: Is NUA treatment available in 2018 if participant terminated employment in 2015 (at age 67) but received a small ADP testing refund in March, 2016 and no other distributions have been processed since? If participant wanted to elect NUA treatment, should he have elected to take a lump sum distribution of entire account in 2016 (the year of the small refund) since his 2015 separation from service was his triggering event or is NUA treatment an option available in 2018?

What do when a participant for whom a SEP contribution is due termed a long time ago and is not responding.

A plan decides upon a profit sharing contribution for 2017 that allocates a different dollar amount and percentage to each participant.  This complies with the cross-tested formula in the plan document and passes testing.  When preparing the notification from the employer to the Trustee (see Padilla memo), do we have to list each employee separately?  Can we refer to an attachment, which would be our allocation spreadsheet?

Alternatively, can we combine the 3% safe harbor and profit sharing when referencing the amount on the trustee notice?  This would make it much easier for this plan.  They basically were trying to allocate a set dollar amount to certain employees, but it is a combination of the 3% Safe Harbor and profit sharing, so the profit sharing is all over the board due to differences in compensation. 

We were asked to run a qualified plan proposal for a company in the farming industry. The business has 3 equal owners, and other than the owners all of the employees are classified as H2A employees. Apparently over the course of the year some of the H2A employees work more than 1000 hours. I was told they return "home" and many come back the following year to work again. Are H2A employees an excludable class of employees for coverage purposes, similar to non-resident aliens? 

In a rudimentary earning calculation, you take:

Closing balance (-) distributions/loans  (-) contributions (-) opening balance (=) earnings

Are fees that are deducted from the account figured into the earnings?  Or should I account for them like a distribution?

I would think I should try to treat them as a sort of distribution because there were shares actually sold.  Others just lump them into the final earnings.

Suppose employee X works 1/1 through 6/30 for employer A and defers the 402(g) limit in employer A's 401(k) plan, then goes to work for employer B and defers the 402(g) limit in employer B's 401(k) from 7/1 through 12/31 of same year. Assume employee X does not take steps to have any portion of the deferrals for the year from either plan distributed to him/her by the April 15 of the following year. If both deferral episodes were pre-tax, then the IRS aggregates the amounts from the W-2 data it gets from employers A and B with respect to employee X , includes the excess in employee X's gross income, and adjusts employee X's 1040. Because the amounts were allocated to employee X's pre-tax account in both employer A's and B's 401(k) plans, when they are later distributed (presumably, with earnings), it's reported as taxable on employee X's 1099-R's, so you have the archetypal double tax that you can only avoid by utilizing the process to have the excess deferrals distributed (notifying the plan(s) by April 15 of following year), which in this example employee X did not do.

But what if employee X had elected Roth elective deferrals for the amounts under both plans? The amounts are already reported in employee X's W-2's as gross income, so there should be no adjustment to his/her 1040. To the extent there is asymmetry in the treatment of pre-tax vs. Roth excess deferrals, seems like what the IRS would need to do is notify the employer that the excess Roth deferrals had been made and that those should be moved by the employer, as plan administrator, with earnings, out of the employee's Roth account and into his/her pre-tax account. But boy, that would be complicated and I have not seen anything explaining the requirement to do this. There is an example on page 19 of the current W-2 instructions that involves an excess Roth deferral under a plan of a single employer, but it doesn't touch the administrative issue that exists where the Roth elective deferrals occurred under plans of different employers.

IRC sec. 402A(d)(3) pretty clearly says that employee X is going to be taxable on the amounts attributable to the excess deferrals,  but how are the administrators of employer A's and B's plans going to know to report as taxable? Is employee X simply on his/her honor? (Both to do the right thing and to study tax law in the evenings so he/she will even understand this?)

Maybe there is a clear answer to this and I've just been out of the loop on the issue, but I am puzzled about it.