Do we have any guidance on how to allocate PPA funding results following a non de-minimis spin off? Specifically, how do we handle shortfall amortization bases, credit balance, and smoothed assets? If we are still operating without guidance, can you offer any suggestions on what you have done/seen?

If it is helpful, here are details of my specific situation. Plan spun out a non de minimis portion of participants at 12/31/2017 to a new plan as a result of a change in controlled group. Assets have been allocated and split as of 1/1/2018. The plan is over 100% funded on a PPA funding relief basis (but wasn't on a 4044 PVAB basis), smooths assets and has FSCB and PFB. 

I don't have much information, but extrapolating/guessing from what I do know, the following situation may be the actual situation, or close to it.

Suppose you have a non-profit foundation, that does whatever - provides canoe trips for blind dogs and cats so that they are less stressed.

They have a U.S. operation, and a Canadian operation. Let's ASSUME that the same board controls both organizations, so they are a related group.

The U.S. organization has a non-ERISA, deferral only 403(b). They have NOT been allowing the Canadian employees to participate, and there is no separate plan.

Now, I can't find where the Canadian employees (I THINK they are all Canadian citizens, not U.S. citizens) can be "excluded" under the Universal availability regulations. But, perhaps the plan could simply exclude all non U.S. source income COMPENSATION, which would accomplish the same thing, as they are paid purely for work in Canada? Or actually, as I think about it, they should be able to exclude Nonresident aliens, I think, which depending upon the circumstances should take care of that "problem."

Never seen a situation even approaching this, and curious if anyone else has? By the way, no highly-compensated employees, apparently.

A former participant had his account balance distributed in February 2017.  The distribution was processed as a direct rollover to his new company's 401k. The check was deposited in February by the rollover institution, Empower. The plan administrator never gave the authorization to Empower so Empower issued a check payable to our Trust, FBO the former participant, as a refund. The check was issued and mailed to the former participant in April 2017. 

The former participant sent us the refund check this week. He has held on to the check for almost a year.

Do we need to accept the funds back? The form 1099R was already issued. Also, we couldn't accept the check as we have since changed Custodians and the check is made payable to our old bank.

What options does the former participant have? 

Thank you

I just had a client ask me how long she is required to retain records (employment and other). Her auditor is telling her that she has to keep record forever. We generally keep paper copies for 7 year, and I just learned that we keep everything electronically - forever. Is there any formal guidance on this?

 

Thanks for any responses!

Small employer currently has no group health plan.  If the employer pays a "minute clinic" a flat per head fee (say $200) that entitles its employees to utilize the limited medical services the minute clinic provides at a discounted rate (say $40 per visit instead of regular $90 walk-in rate), has the employer established a group health plan subject to the ACA and ERISA? 

The problem here, of course, is that if this arrangement is a group health plan, it does not comply with the ACA and ERISA for several reasons, including, no free preventive services and no documentation of the "plan." 

Good Morning -

It is that time of year for questions on ADP/ACP Testing failures.  One of these years I will get this right.  Lets say you have both an ADP and ACP Testing failure.  Participants are 100% vested in the match.  Only one HCE is due a refund which is distributed out to the participant as an excess contribution.  My question goes back to the rate of match which I still cannot understand.  In this example, the HCE earned $200,000 in plan compensation and deferred $18,000.  The Plan provides a match of 100% on the first 3% of compensation.  The Plan contributed $6,000 to the HCE's account.  HCE receives a refund of $1,000 for the ADP failure and $500 for the ACP failure.  With the refund, the HCE now shows $17,000 of deferrals in the plan and a match of $5,500.  Is there an issue here with rate of match?  If not, then when is it an issue? 

Thank you!

401(k) Profit sharing Plan, new comp.   Doctors max out, staff gets minimum.   They currently deposit the 3% safe harbor with each payroll and would like to do the same with the profit sharing.   Anything negative with doing this?   No LDR, or hours requirement for P/S.    

If they do this, for the HCE's that max out,  would it be better to divide the non-elective P/S that they will receive and do that per payroll, or to contribute the percentage each payroll and stop when they hit the max.  

I've never had anyone that wanted to deposit the P/S each payroll.   

Client initiate new 401(k)/PS plan effective 1/1/18.Plan consists of three participants, father and 2 sons, no common law employees.

The makeup of the company is such that they do not have steady income, but rather receive in huge chunks during the year.

Can they make their deferrals in one shot during the year?

I remember somewhere that as long as the income for the month is at least the max deferral, this would be kosher, but never ran into this situation before.

Can a governmental 401(a) DC plan require rehired eligible employees, who were 100% vested at termination, to repay their entire distribution in order to have vesting service restored? The rehire would need to repay the distribution the earlier of 5 years after their rehire date or 5 years after the distribution was paid. If paid within this period the rehire will be 100% vested. (Yes, they want the 5-year period to begin after the distribution date and not the termination date.)

Thank you.

Plan has immediate vesting.  Client wants to amend the Plan to a 3 year cliff vesting.  I used 1/1/19 for the change date (first day of next plan year) because I felt like the treatment during the transition stage was just to complicated and not really the crux of the question anyway.

Option A:  3 year cliff vesting will apply to all new Employer Match money accrued after 1/1/2019. All of the old money will still be 100% vested for everyone who had it, because their accrued benefit is protected.

Option B: 3 Year cliff vesting applies to any new participants who become eligible on or after 1/1/19.  All of the employees who are participants in the :Plan on 1/1/19 shall forever be 100% vested in any match that ever is deposited to their accounts because the vested percentage is protected.

My understanding from the ERISA Outline Book is that the "ERISA Conference Report" which describes Congress's intent might support Option A. But the IRS through some guideline on their website took the position that Option B applies.

According to the EOB, "conventional wisdom" is to use Option B.

Has anyone ever used Option A?

In my experience (with plans, recordkeepers, and SEC-registered investment companies), a participant's investment direction received by the plan's recordkeeper before 4:00 New York (Eastern) Time is treated as timely received to get the open-end mutual fund prices later determined for that day.

Are there any circumstances in which a recordkeeper could allow a later cut-off time?

If so, does anyone allow a later cut-off time?

Or do all recordkeepers set 4:00 as the time for all funds?

 

 

I have a plan that restricts the timing of a distribution until after the close of the plan year following a 1 year break in service if termination is for reasons other than death, disability, or retirement. If termination is due to death, disability, or retirement, then the distribution can be paid as soon as administratively feasible.

The Normal Retirement age of the plan is age 62. A participant terms at the age of 61(not retirement age set by the plan). They wait and submit a distribution request upon turning age 62, but haven't yet incurred the 1 year break in service. Per the plan provisions, do they have to wait for that break in service and then be paid following the close of the plan year, or does the timing allow for them to be paid as they now reached Normal Retirement age of the plan. The employer notated "retirement" as the distribution reason, but at separation from employment, he wasn't the NRA of the plan. Thoughts on the timing of this distribution?

A 401(k) plan is using 21, 1 YoS, and dual entry dates for all sources.  It is a calendar year plan.  They have a NHCE participant that is 42.  He was hired 4/23/16.  He had 1,000 hours in 2016 and 2017.  He entered the plan on 7/1/17.  He terminated employment on 7/14/17.  You are using the 410a4 statutory entry dates (earlier of 1/1 or 6 months after completing the statutory age (21) and service requirement ( 1YoS)) to define otherwise excludable employees.

Can you test him separately for 410b and ADP testing b/c he terminated and would not have entered the plan 6 months after satisfying the statutory service requirement?

 

        A dentist has maintained a profit sharing plan for himself and one other employee for years. The assets in the plan, at the moment, consist of only a single real estate property. He has retired, stopped his practice and wants to terminate the plan. He can't find a buyer for the property and there aren't any other plan assets to pay out the other participant. He doesn't have the money to deposit into the plan or to pay out the other participant directly. Does he have to maintain the plan until a buyer is found so he can turn this asset into cash? Is this true and, if not, what are his alternatives?

Can a bonus plan can provide for both

(a) payment of X amount if person employed on Y date, and otherwise if you're not employed on Y date, you don't get paid regardless of the reason for the earlier termination of employment (e.g. no payment even if termination prior to Y date was because of death, disability, etc.) AND

(b) Board "may elect, in its sole discretion" (presumably as of date Y) to pay one or more participants who are not employees on Y date such that the participant, even though not employed on date Y, still gets the payment.

I believe the answer is NO.  But confirming.  This is something that the client has drafted and sent for review.

Thanks

 

 

Question  - when is the best time to terminate DBP now, 2019, 2020, etc?

Client 52 year old, wholesale business owner where he is the sole employee.  The business is setup as a sole proprietorship and he has a DBP, Solo401(k) and PSP. Client wants to retire at age 55 - July 2020.

DBP is already overfunded by 2.5%, as of today 2/26//2018, for the Lump Sum @ Ret calculated for age 55.

Client has not made any contributions to the DBP for 2016 and 2017 due to the anticipated overfunding. Thus is he receiving no tax benefit having the DBP other than time passing. 

The assets of the DBP are presently in money market account earning 1% in Vanguard Federal Money Market Fund (VMFXX) since why risk with equities when any gains results in overfunding tax.

Business owner anticipates

2018 Business profit at least $130K

2019 Business profit projected at $50K

2020 Client would sell some of their premium web domain names and therefore would have a business profit

Client has never reported a business loss, but could report 2 years before finally closing business.

So that would be 2022 to terminate DBP, then roll over to a IRA and by then there would be no overfunding issue.

Think keeping the DBP going until 2022 would allow deferring income earned in 2018 & 2019 for $61,000 each year (DBP $0, 401(k) $18,500, catch-up $6,000, PSP $36,500), 2020, 2021, 2022 the business is not expected to make much of a business profit.

I feel this is the best approach but interested an anyone’s feedback.  There would be no more contributions to the DBP and the business would have no income in 2021 and 2022.

If we terminate the DBP now excess assets revert to the employer, they are subject to two taxes:

1.            Business income tax because the excess assets have not been previously subject to taxation.

2.             A non-deductible excise tax of 50% of the amount of the excess assets.

The way to potentially avoid paying the excise tax is to transfer the excess assets into PSP. The excess assets will be used to make the employer allocations. Since they had been deducted, would not be able to deduct these amounts again on client’s tax returns.

Client will start paying expenses for the DBP maintenance and accountant fees that would draw down some of the excessive funding.

If we did terminate the DBP now the excess assets would be used for (401(k) $18,500, catch-up $6,000, PSP $36,500). The issue here client knows business income will be over $130K for 2018 and could push some business income from 2018 into 2019 so business income of $55K is possible. But there would not be enough time or business income to use up the transferred excess assets and client wants to retires from the business. Client does not see selling the business is possible and will just close down. 

Some of the other strategies for mitigating overfunding DBP are not applicable to client’s situation

1. Increasing plan benefits since client is at the maximum permissible (415) benefit level

2. Bring new participants into the plan. Client is 1 person business, single, no kids

Thank you for your time reading my post and your feedback is welcomed.

12/17/2017  The company purchase another store.  They merged the prior ER plan into their plan. 

The 13 employees were given service credit for vesting and eligibility and entered the plan 12/17/17.

They were not given credit for service for contributions, the match,  which has a 1000 hour requirement.

Coverage fails by 3 participants.

Options are:

1.  If I exclude the 13 from coverage test, it still fails. 

2.  Amend the plan to included 3 more participants that have the most hours of service.  These three have zero deferral.  Therefore match would be zero.

3.  Or could amend the plan to include the 13 new participants hours with the previous employer, all of which deferred.    Do I have a problem doing this if the Match is discretionary and they gave us a dollar amount to allocate?  Match has not yet been deposited.

Average Benefits Test has been excluded as an option.

 

Am I missing anything?  I don't run across this much with the plans we have.  I want to give the client some options.

We have a client that sold substantially all of its assets (everything but the pension plan) in an asset sale to an unrelated buyer.  Company is no longer an ongoing concern but the prior owners are trying to wrap up the pension plan and terminate it.  The plan is underfunded and there were zero proceeds from the sale to fund the pension (the owners also got nothing from the sale, the sale proceeds were only sufficient to pay off bank loans).  The PBGC is involved and we are trying to get direction as to whether they will take over the plan and wrap it up but they have been "examining the case" for months with not direction.  In the meantime, the company continues to file Form 5500s and obtain plan audits....further eroding the plan assets and excise taxes are accruing due to funding shortfalls, etc.  Any recommendations on how to terminate this plan and wrap it up?

Let's say a plan designates each person into a separate group for Profit Sharing contribution purposes. For instance, let's say the owner maxes out and gives smaller contributions to some NHCEs and 0% to others. Let's say the General Test passes. Now, let's take a look at the Coverage Test.

 

1) Ratio Percentage: Let's say the plan fails Ratio Percentage portion of the Coverage Test.

2) ABT: My understanding is that the plan cannot rely on ABT in this case (even if it passes in terms of the percentages) because the nondiscriminatory classification portion (the first part of ABT) is not passed because the allocation of Profit Sharing contributions is not nondiscriminatory.

 

Would you agree? Would you say that if the plan designates each employee into his/her own group for Profit Sharing allocation purposes, the plan must pass the Coverage on Ratio Percentage and can't rely on ABT (even though the mid-point can still be used for General test if both Ratio Percentage and ABT test are passed)?

Is based on compensation including taxable fringe benefits even if the plan excludes taxable fringe benefits frm the definition of Compensation, correct?  The fact that it is a safe harbor exclusion does not matter.  Right?

I think so but please confirm!