Let's say there are 2 companies, both owned by the same Employer. Company A has employees who are NHCEs and the Employer is the 100% owner. Company B is owned 100% by the same Employer and there are no other employees at Company B. Would this be a Controlled Group and would it have to be aggregated for testing purposes? What about the coverage test for Company B? Wouldn't the test show that 100% of HCEs are benefiting and 0% of NHCEs (since the denominator includes the whole NHCE population of the controlled group) and therefore the two plans will have to be aggregated for testing?

Thanks.

Employer A and B are unrelated employers who both sponsor a 401(k) Plan.  Employer A purchases 100% of the stock of Employer B on December 15, 2017.  However, on December 14, 2017, Employer B establishes a termination date to terminate its plan as part of the M&A agreement because Employer A does not want to assume sponsorship of that plan.

ISSUE:  Employer A does not want to recognize prior service with Employer B (wishes to treat the newly acquired employees as new employees) requiring them to meet the age/service conditions in the plan to participate.

The excerpts below are from the ERISA Outline.  The first two seem to relate to an asset transaction (not stock transaction).  The third seems to back up that interpretation especially with the highlighted text.

• IRC §414(a)(1) requires service for a "predecessor employer" to be treated as service for the current employer only if the current employer is maintaining the plan of the predecessor.
•  IRC §414(a)(2) provides that where the employer does not maintain the plan of the predecessor employer, service with the predecessor employer does not have to be counted by the new employer, except to the extent provided in regulations. Since no regulations have been issued, the IRS has generally treated the granting of service under the circumstances described in IRC §414(a)(2) to be elective on the part of the employer, provided that the granting of service does not create prohibited discrimination.

• According to the IRS in GCM 39824, an employee generally does not have a severance from employment merely because all or a portion of the stock of the company is sold to another person. For example, if the shareholders of a corporation sell their stock to another business, or to other individuals, the change of ownership of the corporation does not cause the employees of that corporation to have a severance from employment. This is true regardless of whether the corporation maintains a plan and, if it does, whether it continues to maintain that plan after the sale. The IRS is simply recognizing here that in a stock sale, the entity itself continues. Only the owners of that entity have changed. Thus, there is no “former” employer from which the employees of the entity can have a severance from employment.

When the employee is treated as having a severance from employment from the seller, the buyer does not have to give the employee credit for service with the prior employer.  If there is no severance from employment, then the employees are treated as continuing to work for the same employer.  

QUESTION:  Does the termination of Employer B's 401(k) plan prior to the acquisition date (12/15/2017) allow Employer A to treat the newly acquired employees as having a severance from employment and therefore no mandatory recognition of prior service is required?

I have always thought the answer was YES but I am beginning to second guess this answer.  Any feedback is greatly appreciated! Thank you.

I have a plan where the owner is the only one deferring.  6 staff members.  She wants to max out at $54k.  Plan is 3% SH with a discretionary match.  We are thinking of giving her a 4% match to lower the gateway.

Does she have to let the non-deferring staff know that a match is being made to the plan?

Participant defaults loan on 3/31

Participant turns 59 1/2 on 7/1

1099-R is issued after end of the year

Early distribution penalty?

Has anyone had any experience with the following (or similar) scenario?

Plan effective 1/1/18 with profit sharing provisions. Elective deferrals are added effective 3/1/18, but the plan sponsor wants to offer the 3% employer non-elective safe harbor contribution effective 1/1/18 (i.e. for the whole plan year, even though deferrals are only allowed for 10 months).

this hardly seems like it would violate anything as they are being more generous than necessary, but I cannot find any authority for allowing such an arrangement. 

Thoughts anyone?  

Can someone please help me find reference to guidance that I have heard of that allows an employer to not combine two related companies into a Controlled Group for the purposes of discrimination testing in the year of acquisition, and perhaps even the year following acquisition?  Thanks so much.

Nancy Pritz 

Profit Sharing Plan has a last day rule for allocations.

Employer wanted to make a flat 3% contribution to all employees, so he plugged a formula into payroll and contributed 3% to each participant every pay period (so that he wouldn't get a large lump sum contribution due at the end of the year).

A participant terminated during the year, and therefore didn't meet the allocation requirement to receive the profit sharing contribution.  The profit sharing was paid out with his distribution.

The employer was not able to recover the excess distribution, so he will make a contribution to put the plan back in the place that it would have been, had the error not occurred.  As I understand it, the employer can deduct the corrective contribution in the year that it is made.

My question:  Is the original contribution made to the employee that didn't meet the allocation requirements deductible?

It seems to me that it's kind of double dipping if he deducts the contribution to the participant and also deducts the corrective contribution.

Thanks all!

We filed a VCP for late RMDs in May.  Case has not been assigned.  Waiver of excise tax requested but what do you recommend we tell the distributee regarding his tax return due April 15? Doubtful we will have an answer by then. Considering giving him a letter to attach to his return.

does anyone have experience with 1099R coding when old post-tax contributions are cashed out of a qualified retirement plan?  I have always been under the impression that there is no code and leave Box 7 blank, adding the post-tax contribution amount in Box 5, and the taxable field would be 0.00.  any push back on this?  I have submitted several 1099Rs to the IRS over the years like this.  now being questioned that there should be a code in Box 7.   thanks!

Let's say an employee works at 2 different division within a company. At Division A, he earns $10,000 for the year. At Division B, he earns $20,000 for the year. Let's say he already met the eligibility/entry date requirements. The plan document excludes Division A from the Plan. Let's say the company does a 3% Safe Harbor Profit Sharing and a 2% Profit Sharing. What compensation would be counted for these contribution percentages? Would the whole $30,000 compensation be counted or just the $20,000 from Division B? Let's say the plan document does not clarify this particular situation.

Thanks.

Money purchase plan provides a contribution of "X%" ONLY if you defer at least 3% in 403(b). I'm nearly certain I remember that in such a situation, the MP contribution is treated as a matching contribution subject to ACP testing. Agree/disagree? Thanks.

Bah. Don't bother - No HC anyway! Thanks.

Client pays employees commissions out of which comes the elected 401k deferrals. It was discovered at year-end that deferrals were never taken out of those commissions. 

Two questions, under the Revenue Procedure 2015-28, would the QNEC be 50% or 25% of the missed deferral since it was discovered at the end of the plan year? 

Secondly, the payroll company has said that they might be able to re-do the W-2's of the employees involved if the employees wanted to make up the difference between the client's QNEC and the amount of the deferral that was missed. That would involve the employee actually giving back some of the money that he earned.

Please advise.

Thank you!

Safe harbor plan with a 3% SHNEC. 3 month eligibility. Definition of compensation is shown as follows:

16.   Pay Before Participation

[ X ] Exclude pay earned before participation in the Plan from definition of Compensation for the following purposes:

a.     [  ] Matching Contributions

b.     [ X ] Non-Elective Contributions

NOTE: If selected, Compensation shall include only that compensation which is actually paid to the Participant during that part of the Plan Year the Participant is eligible to participate in the Plan.  If not selected, Compensation shall include that compensation which is actually paid to the Participant during the period specified in A.13b.

To calculate the SHNEC do I use the whole year's compensation for someone who enters during the year or do I base it on the above election?

We have a municipal pension plan that requires employees to make mandatory pre-tax contributions to the Plan.  If a participant terminates prior to vesting, the mandatory contributions are paid out in the year of separation.  I was told the "prior person" said the code on the 1099-R should always be 7 (normal) or 2 (exception), but no explanation was given.

In reading the Form 1099-R instructions Code 2 does not seem to apply to this distribution, although intuitively it seems to, i.e. participant was automatically enrolled (mandatory contribution) and is now forced to take the withdrawal.  However the section of the Code, 414(w)(1)(B), seems to only address section 401(k) Plan(s) with automatic enrollment.

Thoughts?

We recently received a census from a client where she indicated that all terminated employees separated from service.  No deaths, no disabilities, no retirement.  She reconfirmed this by phone.  At least in her mind, nobody was retired.

However, one person who quit fit the parameters to be considered "retired".  He is well over age 65 and had 5 years of service.  Our computer software is picking him up as retired instead of just separated from service.  In this plan, he will be eligible for a match and a profit sharing contribution he would not otherwise have received.

Does it make any difference that the employer considers him to be a person who merely quit?  Is it correct that once a person has satisfied the age 65 and 5 years of service this plan requires, and he leaves, he is retired, regardless of the circumstances when he terminated employment?

Thanks as always for any help here.

I have a former client that established a nonelecting church plan that's a DB plan.  The plan was never restated for PPA.  Does anyone know how I can refer the client to a qualified firm to both do the restatement and also file under EPCRS?

So, IN January of 2018, someone sends 2017 data and asks you to do DCAP testing. They pass the "5% owner" test, but fail the "55% DCAP test."

Lets us just suppose that the HC average benefit amount was $1,000, and the NHC average was $300.

I'm being told that as long as it is "corrected" by the time the W-2's are done, that instead of the entire HC amount being considered taxable income, you can just count the excess over what "would" have passed.

So, for example with a $300 NHC average, if the HC average had been $545 (I'm rounding here) then it "would" have passed, and therefore the HC taxation on the DCAP will only be amounts in excess of $545.

Is this approach "blessed" anywhere in IRS guidance? I don't find it anywhere, but I'm not a cafeteria plan expert. Do people just do it this way, even if not officially sanctioned by the IRS?

2 person plan - owner and nhce - terminated early last year due to business closure and all final comp was provided for safe harbor contribution which was deposited, and nhce account liquidated. owner account still exists so the plan itself still has assets.

with the close of the year, accountant has determined there was additional pay that did not receive the s/h contribution.

with no account to deposit to, what would the best way be to make up the s/h contribution of about $50?

Participant is slightly ($18.00) over 402g for 2017, refund is processed on 01/03/2018.

I know the participant will receive a 1099-R form next January from the vendor for th excess.

My question is in regard to the 2017 W-2 form - will that show $24,018 or $24,000?

Since there is no line on the 1040 return for the actual deferral amount I wasn't sure how that works.

I've never seen the actual W-2 form for someone who exceeded the limit.  I vaguely recall reading about someone doing their taxes on Turbo tax years ago and the software would not let them enter the higher amount, it gave them an error message. 

Just curious more than anything.....

A recent retiree from a large US based corporation was told that her 25 year old son was not eligible for coverage under the retiree health plan because it only offers coverage until age 25 rather than the age 26 as in the active employee plan.

I was under the impression that the ACA required all plans to offer coverage until the child's 26th birthday. Is this incorrect, or is there some exception I'm unaware of?