A small DB plan covers husband and wife. They also have 3 long term employees that are covered under a profit sharing plan. They always pass 401(a)4 because they always make a 12% profit sharing contribution and there is adequate age difference.

The DB plan now has excess assets of about $100k over 415 maximums.

The document is a volume submitter with one of the actuarial equivalent selections as 417(e) assumptions. The plan has operated under more conservative assumptions. If the actuarial equivalent is amended to the 417(e) assumptions and then terminated and distributed next year, it is likely they will not have excess assets, especially if they take an in-service distribution of the bulk of the assets now.

I know this would likely be seen as discriminatory. However, they would be willing to make a 25% profit sharing contribution to employees this year. If the 401(a)4 test were then run on an accrued-to-date method they would easily pass. In running the test, we would convert the monthly benefits to the actuarial equivalent based on prior assumptions.

Any thoughts?

Thanks.

Small  (less than 100) 401(k) plan does not presently allow for loans - but would like to add them, subject to the hardship rules. 

they would like to restrict salary deferrals while a loan is being repaid. Meaning the participant cannot make deferrals until the loan is repaid in full. The thinking is that if the participant has extra cash available to make deferrals, then they should be using that extra cash towards the loan. 

i don't see anything on the face that would make this provision a problem - except a possible BRF issue. 

If loans are available only for hardship purposes, probably NHCE will be the primary users. If so, then the deferral restriction will primarily affect NHCE. HCE that do take a loan would likely have more means to repay it quicker. 

Am I over thinking this? 

Thoughts?

Should this provision be allowed?

Fund-holder notified client he over-shot his $18 due to the fact the payroll company did not cut off his payments at $18 for the year.

They refuse to do the excess earnings calculations.

Is it out of the realm of possibility to use the VFCP Calculator for this purpose?

A document is written:

Normally a plan with 1 year of service and 21 is written:

You will be eligible to participate for purposes of salary deferrals when you have completed one (1) Year of Service and have attained age 21.

But for some reason recently it was written as:

You will be eligible to participate for purposes of salary deferrals when you have completed 1,000 Hours of Service within your first 12 month(s) of employment and have attained age 21.

The client is coming back to us saying he thought the eligible was 6 month, based on the above.  I can see his point.  You could interpret it as once I work 1000 hours(6 months for full time employee) I become eligible.  Doing this for years I know it's 1 year but could see his arguement.  Has anyone else seen it written this way?   

Do control group rules affect successor plan rules? I have a person who owned two businesses, only one with employees. This Company with employees  has been sold and all employees hired by the new company. The business owner/sales person is going to a 1099 consultant to the business. Can they establish a 401k plan under the other business they owned (or a new one they create)? Or should they just establish a SEP which I know is not a successor plan. 

Thanks

A potential cash balance plan client made the 2017 contribution in 2017. It has now been determined that this contribution is over the maximum allowed. We think the excess can be transferred to the client's profit sharing plan but can't find clear guidance on this.

I have a cafeteria plan that is on a calendar year basis.

The client's insurance policies are on a fiscal year basis (5/1-4/30).

I am aware of how to file Form 5500 with these policies.

The question was asked as to how to handle the "lock in" period.

The employees should be able to enroll and make changes for 5/1 open enrollment.

The cafeteria plan has a January to December term on their forms and would normally be "locked in" for this period unless they had a Change in Status.

What are your thoughts on this considering the two different periods?

I suggested changing the cafeteria plan year to match the insurance policy years to make it less confusing.

Thank You,

We were just notified by a brokerage firm that our client, sole shareholder of his PC apparently over contributed to the employee portion of the plan.

When reviewing the contribution history from 1/1/2017 - 12/31/2017, it would appear as though the balance of his elective contribution was for the prior year.

He is not eligible to make catch-ups.

I know that sole proprietors have until the due date of the business tax return including extension to contribute to the plan, including any employe contributions, but I do not think that applies to shareholders?

Looking for confirmation on this to make sure the ADP safe harbor is not violated subjecting plan to the ADP test - 401k plan has an enhanced safe harbor match of 100% up to 6% of compensation. Employer is considering adding a discretionary tiered match based on years of service, so that employees with 15 - 19 years will receive a 100% match up to 1% of pay, employees with 20+ years will receive a 100% match up to 2% of pay. The total match under both formulas for the employees in these higher tiers, for which there will be HCE's, would be 200% up to 1% and 300% up to the first 2%. I believe this creates a higher rate of match scenario and plan has to run ADP, ACP and BRF testing. Or, is it just a matter of running ACP and BRF on the discretionary tiered match?

Thanks for your comments!

Some 401(k) plans have many different types of distributions besides lump sum on termination of employment, e.g. hardship, non-hardship in-service after attainment of age 59-1/2, in-service at any age from rollover account, partial distributions after separation from employment, and RMDs. If the plan also has Roth elective deferrals and an in-plan Roth rollover feature, an employee's accounts for elective deferrals, nonelective, matching, and rollover may all contain both Roth and non-Roth accumulations. So when a distribution of less than 100% of any account is made, you have to determine the portion that is Roth, and the portion that is not Roth.

The 401(k) LRMs allow a plan to provide that distributions of excess contributions after failure of ADP test are made first from non-Roth amounts, but aside from that, I can find no guidance from IRS regarding what it thinks is permissible and have come to conclusion that it is up to the plan and that the plan can also let the participant decide in his/her distribution request form. E.g., plan document could permit a participant who qualifies for an age 59-1/2 non-hardship in-service distribution, who wants to receive $50k as distribution, and who has $100k of Roth and $100k of non-Roth spread over elective deferral, matching, and nonelective accounts to elect to take the entire $50k from the non-Roth. Also, plan could provide that RMDs always came first from non-Roth until non-Roth exhausted. Anyone else given this some thought or found guidance on the question that I am unaware of?

One major vendor has a distribution form that seems to permit what I describe in prior paragraph (i.e., employee choice), but I did not find a supporting provision in its volume submitter.

That a retirement plan required no spouse's consent for a distribution before the participant's death meant a surviving spouse gets no portion of a $2.7 million benefit.

The participant's claim was processed on a Friday; he died on Sunday.

Wengert Eighth Circuit.pdf

I just received an email from a client regarding distributions that were made from their plan in December, 2017 and need Forms 1099R issued.  This is a plan that has the investments via brokerage accounts, which we (TPA) provide the recordkeeping for.  We also produce the Forms 1099R each year, however the client never alerted us of these 2 distributions in January when we inquired.  Now they want us to prepare the Forms, and I can see that there will be a penalty to the IRS for filing paper copies late ($100?).  I've never experienced this, so does anyone know what the process is to file these late?  Is there an addiitional form to file with the penalty, anything else?  

If in a New Comparability plan where each participant is in their own allocation group, is it permissible to provide an HCE with no allocation?

A participant bought a life insurance policy from a plan several years ago. During the time the policy was in the plan, he paid income tax against the "PS 58 cost" portion of the premium each year. Several years later he cashed out the policy, and there is now gain (relative to the original exchange price) that will now be taxed. For purposes of determing the gain, is the participant's cost basis the exchange price, or is it the exchange price plus the sum of the PS 58 costs?

Say a fully insured group health plan covers 100+ participants. The company (plan sponsor) is sold during 2017 and the group health plan ends, and the policy expires, on December 31, 2017. The employees are hired by the acquirer effective January 1, 2018.  

The 5500 instructions say not to check "final return" if "the plan is still liable to pay benefits for claims that were incurred prior to the termination date, but not yet paid." 

Two questions:

1. Is 2017 the final return, or does the fact that the insurance company may still receive and pay claims require another 5500 for 2018?

2. If the answer above is yes, presumably the active participants at the end of the plan year would be 0, even though the policy ended at 11:59 p.m. on December 31, 2017, correct? You can't file a final return with a participant count >0, so this seems logical. 

We've got a SP dentist who sponsors  a  SHM 401K, he contributed for 2017 as well as 2018 in 2018 toward the employer match.

Of course the fund-holder directed the funds to the proper participant accounts.

Now that the employer has learned he contributed too much, he wants to either have the excess removed and a check cut back to him or to have the funds transferred to his own account.

We explained no-can-do, the money has already been deposited into the participants accounts and you can't remove it by claiming it was a contribution made in error.

As far as removing and re-depositing into his own account, we cited 401(a)(4) benefits, rights and features.

He wants to know why he can't contribute to his account now and to the employees' either later in the year, or by tax filing deadline for 2018.

Need a cite, please.

A new (to our TPA firm) 403(b) client has not filed 8955 SSA in the past due to confusing "instructions" sent by internet by a vendor supposedly doing administration.  Our TPA firm is filing for the 2017 year (the first year for which we are responsible) and the client is anxious about the possible penalties.  We know that there are possible penalties, but also note comments which say don't "self- file" on the penalty payment ("According to the IRS website, you should not voluntarily mail in any payment of penalties. If they decide to assess a penalty, they will contact you directly with details.").    Please share any experience with this.  We would like to be able to tell the client whether or not to expect assessment of penalties.  Thanks!

At the beginning of 2017 the client's compensation definition was W-2 wages excluding fringe benefits. A bonus was paid to one NHCE, from which they did not withhold deferrals or pay the match. After being reminded by the TPA (me) that they were supposed to treat bonuses just like any other pay check, things got out of hand.

The payroll person withheld the amount that should have come from the bonus check from the next regular pay check.

Not realizing this had occurred, we instructed them to make a 50% QNEC and 100% of the match. (Too late for reduced QNEC.) Instead, they deposited a 100% QNEC and 100% of the match.

All deposits were made in 2017.

How do we fix this?  And which amounts do we use in the ADP test?

My husband passed away on 2/19/18.  I was able to access his account 2 days later and saw the amount that was in his 401k at Vanguard.  Once I notified Vanguard of his death, I was locked out of the account.  I am the beneficiary.  I repeatedly called to try to get information about how to proceed with my claim.  Several calls resulted in un-returned voice mails.  I finally was directed to someone in "Life Events" and that person was on vacation.  I was told by husband's employer's Human Resources department that I would need the death certificate. When I received that I sent it to Vanguard (on 3/22/18).  I called Friday (3/29/18) and they were closed for holiday.  I called today (4/2/18) and finally got a call back telling me that in 3 to 5 days I will have access to the account and was given the amount that is there now.  In all this time (6 weeks since his death), my husband's 401k has decreased by $8000 from the amount I saw when I viewed the account shortly after his death.  It was my understanding that his account would be frozen as of the day of his death.  Instead it remained  active.  Is this the way it is usually handled or should they have frozen the account?

This plan has a 1 YOS, age 21, 1000 hours with monthly entry dates.  It uses the anniversary date of hire for the first and all subsequent years for eligibility.  An employee hires 8/28/16, terminates 9/14/16 and rehires 2/25/17.  He does not work 1000 hours in his first year (8/28/16 to 8/27/17).  The client wants to use the 2/25/17 date as his hire date.  The plan document only discusses the original hire date.  I haven't found anything that indicates we could use a rehire date to determine eligibility.  If the 2/25/17 hire date is used, he enters on 3/1/18.  If we continue with the original hire date, he enters on 9/1/18.  Does anyone have any input on using a rehire date vs. the original date of hire to determine eligibility?