.

Plan fails ADP testing for 2016 plan year.

Company distributes HCEs' excess contributions in February 2017.

Excess contributions are subject to tax in year of distribution (2017).

Company provides a make whole payment to HCEs to account for the tax owed on the distributed excess contribution.  (Idea being that if the plan had passed ADP testing, the excess contributions would have stayed in the plan and would not have been subject to tax.)  

Payment to the HCEs is made outside of the plan -- structured as a bonus essentially.

Anyone see a problem with this?  I tend to think this is okay...

The plan sponsor failed to file the final/short form 5500 for the plan year ending 5/31/2016. We recommended DFVC, filed the return in November 2017 and paid the $2,000 penalty (this is a large plan) . The DOL's online calculator correctly indicates that the penalty is $2,000 (based on 313 days late).

The client received a letter from the DOL stating that they might have submitted an overpayment of $1,260 and included an ACH form for the plan sponsor to request the refund.  We called the DFVC number on the letter but got voicemail and have yet to receive a call back from them.

Any indications as to what might have triggered the letter? Anyone had any success in addressing this with the DOL? We don't want to overpay the penalty but we are pretty sure the penalty is $2,000 and not $740.

We have an individually-designed safe harbor plan that has 100% vesting for all accounts, including the profit sharing and discretionary match.  Is the plan required to adopt an interim amendment to provide that QNECs/QMACs will be vested when allocated?  I can't imagine they would.  

Let's say a plan allows for In-Plan Roth conversion. A participant has only Pre-Tax Deferrals in his account, but he's not yet 59 1/2. I have 2 questions:

1) Since Deferrals always have a 59 1/2 age restriction for In-Service Distribution, would he be able to convert his account to Roth?

2) If so, what if he decides to withhold a certain amount, let's say 10% on that distribution? Would that be permitted? Seems like it shouldn't be as the amount going to the Roth Conversion would be less than the original amount (the other 10% being the taxes paid).

Thanks,

Has anyone had to file a late Form 8955.  We have a new client and this was not filed for 2016.  It appears that DFVCP- is available and I am researching further.  There is no formal correction program but I saw instructions from the IRS saying file under DFVCP which I suppose means re-filing the 5500 and paying the penalty. 

Does anyone have experience with this?

Thank you,

Tom

Is anyone aware of provisions in the tax bills to allow 2017 conversions to be recharacterized in 2018 despite the elimination of that ability going forward?

Thanks

Michael

An LLC shareholder taxed as a sole prop wants to contribute a deferral but he gets no paycheck. How is that accomplished?

A 2/3 owner in a Salon also has a Sole-Proprietorship, in which she pays herself for services performed in the Salon.  She maintains a Solo-401(k) for her Sole-P, which she maxes out.

Is this an Affiliated Service Group, or does a Salon not qualify under the definition of a Service Organization?  

Thank you

Can a refund resulting from a failed ADP test be used to satisfy RMD requirements for Key Employee in a 401k Plan?  

Thanks.

A shareholder is creasing to be a 5% as of 12/31/2017 and will continue to work at the company.    He turns 70 1/2 in 2018.   

Since he is not a 5% owner in 2018, is it correct that he does NOT have to start taking RMD's from the plan until he retires?  

A plan uses the alternate safe harbor for 414 comp, excluding fringe benefits, deferred comp, welfare benefits, etc., for purposes of allocating their nonelective contribution.

Additionally, now the client would like to exclude overtime and bonuses.

Question, for purposes of the compensation ratio test, am I starting with my alternate 414 comp as my base for the test, and using only the excluded overtime and bonuses in the ratio.  Or am I starting with all compensation, and excluding all of the excluded comp in the ratio.

For example, assume total comp of $50,000, including $1000 in fringe benefits and a $5000 bonus.

Is the compensation ratio 88% ($44000/$50000), in other words, starting at $50k and reducing comp by all of the excluded comp?

Or is the compensation ratio 89.8% ($44000/$49000), in other words, first reducing the $50 by the $1000 fringe to arrive at a "base" 414 comp, then excluding the bonus?

Hopefully I've phrased that correctly, and appreciate any insights.

Thanks.

Hi All:  Appreciate comments on the following question:

If a calendar year 401k plan changes it's eligibility computation period from anniversary year to plan year - the amendment is effective 5/1 - rather than 1/1 - how does that affect a participant that was hired on 9/10/2015?  One year of service for eligibility (1000 hours).  1 YOS would be 9/9/2016.  If not 1000 hours during this period - we look at 9/10/2016 - 9/9/2017.  But the amendment was effective 5/1/2017 - so do we look now at plan year 1/1/2017 - 12/31/2017 or does it switch to plan year for the 2018 plan year (prospective from the date of the amendment)?  If this is not clear enough or if more facts are required, let me know and I'll try to elaborate.  Thanks!

Facts

Owner - O owns 100% of Company A

In October 2017 - O sells 60% of Company A to unrelated 3rd Party

Owner - O starts Company B which he owns 100%

Company A is an on going concern with employee staff

Company B is new company that employs 2 employees, both of whom will be  highly compensated plus the Owner.

Owner O wants to set up a plan that excludes owner O but covers the 2 employees of Company B.

Company A and Company B are both calendar year tax payers.

For Calendar Year 2017 Company A and Company B are a controlled group.

For Calendar Year 2018 Company A and Company B will not be a controlled group assuming there is no change in ownership.

There are no affiliated service group issues to consider with Company A and B

Questions

1. Can company B establish a profit sharing plan for calendar year 2017 covering only the new hired non-owner employees of B with out covering any employees of A? I believe this is yes because the newly hired employees would both be non-highly compensated employees as they had no pay from Company B in 2016.

2. Does this change if the are being hired from A where they earned over the dollar limit in 2016 to make them an HCE is company A in 2017?

3. Can they start a DB plan for calendar year 2017 for company B not covering A? I believe this is a big no as 401(a)(26) would be problematic.

4. Can Company B start a DB plan effective November 1, 2017. Have a non-fiscal year plan running 11/01/17 - 10/31/18 and ignore Company A altogether as the transaction was completed in October 2017.

A NHCE participant was proactive for 2017 and realized his deferrals into two unrelated plans were over the 402g limit and requested a distribution of the excess.  The distribution was done from the currently employed plan that we administrate.

From the 401k Plan Fix It Guide:  Excess deferrals distributed to highly compensated employees are included in the Actual Deferral Percentage (ADP) test in the year the amounts were deferred. Excess deferrals distributed to nonhighly compensated employees aren't included in the ADP test if all deferrals were made with one employer.  (Emphasis mine)

Just so I am doing this correctly, the overage stays in the ADP total for the year because of the unrelated plans?  I guess that makes sense... the employee could manipulate the two unrelated plans if they were devious.

Hi, 

Probably a very simple question, but I couldn't find any guidance.   If the plan was closed and distribution was done early in the year, say March 2018, and you need to file 5500 for the short plan year of 2018, which year 5500 form should you use? I asked this because it seems you should use the year 2018 form 5500, but the year 2018 form 5500 will not be available until the early months of 2019.   Can you just use the year 2017 form 5500 for the short 2018 plan year? 

During 2016,  a  $4000 deferral by the  owner of a company was incorrectly put into an old IRA rather than into his 401k account. This error was discovered during year end reconciliation and preparation of the 5500 in early 2017.  The error was made by the asset platform/broker's office.  However, now to transfer the funds, they want us as the TPA to write a letter saying something like "the plan accepts this rollover".  There should not be a rollover, since it never should have been put into the IRA.  Has this happened with any of your clients, and how was it resolved?  .  The asset provider is wanting to prepare a 2017 1099R.   Again, they made the initial mistake of putting it into the IRA.   Now we are supposed to jump through hoops to cover them.  Thoughts?  

Employer was not updating participants deferral changes they made on the Recordkeeper website. The plan is 3% Safe harbor, so no matching to worry about.

So if a plan missed updating a deferral for all of 2016 and 2017, do they to do any corrective remedies?  Participant believed they were deferring 8% Roth, but the payroll was only deferring 7%.  Basically $15 per pay period difference. 

Is the link below relevant, or does it not apply because these are Roth contributions?

https://www.irs.gov/retirement-plans/fixing-common-plan-mistakes-correcting-a-failure-to-effect-employee-deferral-elections

If a QACA plan provides for permissible withdrawals. If the plan has a under saver sweep does permissible withdrawal apply to it? Meaning can a participant who opted out of a under saver sweep request a permissible withdrawal if they opted out within 90 days from the date of the sweep.

If a plan allows life annuity distributions, but requires the payment of a single lump sum to an insurance company to purchase a single premium annuity, do the QJSA rules apply?