A sponsor is top heavy in the initial plan year (i.e. 2015). We accrue an end of year match to reduce the TH ratio below the 60% threshold that would in effect, get them out of top heavy for both the initial and subsequent plan years. They neglect to fund the match.

During 2017 can they still fund the end-of-year 2015 match to reduce the TH ratio, or does that option go away and they now must fund the 2015 and 2016 3% top heavy allocation?

Thanks for any input.

Sometimes a tricky subject. Suppose you have a business that has a large majority of employees who might work anywhere from 500 hours to 1400 hours. The business would like to set up a plan that EXCLUDES ALL the H/C employees, as well as ALL the employees in the 500 to 1400 hour classification, and only covers the rest of the employees, who, (purely coincidentally) are full time. Don't really have any demographics or job classifications/functions yet.

The guidance on this is a little strange. Under 401(a)(5) for example, there would be no problem with excluding all these employees IF they here all hourly. If all the rest are salaried, then everything is clean.

On the other hand, under 1.410(a)-3(e)(1) you can't have an exclusion category that would "indirectly" impose an impermissible age or service condition. And you have QAB FY-2006-3 which give s some guidance.

Suppose you have an exclusion category that says anyone earning W-2 compensation of less than "x" is excluded. And everyone earning less than "x" isn't in the full-time category. This would not appear to pass the "smell" test, even though if everyone earning less than "x" was hourly, it would be perfectly acceptable to exclude them as hourly.

It appears that if the exclusion category doesn't relate to service, that it is generally acceptable. So would you say that using a salary level is acceptable? I keep returning to 1.410(a)-3(e) on this, but I think this doesn't ultimately impose an age or service requirement. I've just never seen a plan do this.

Thoughts?

Is there any legal requirement that an employee must be the beneficiary on a dependent life insurance policy?  I see this in many policies and I'm not sure why this is the case.  I have a situation where an employee designated his children as beneficiaries on the policy on his spouse's life.  The employee made this designation on the dependent life insurance enrollment form provided by the insurer.  The insurer did not object to the designation when originally made.  Unfortunately, the employee's spouse passed away recently and the insurer is now saying it will not pay the children because the policy language requires the proceeds to be paid to the employee.  I think if the insurer accepted the designation, they must pay the designated beneficiaries, even if that conflicts with the terms of the policy.  The only reason I can see for not paying the children is if there is some legal prohibition against naming someone other than the employee as a beneficiary on a dependent life policy.  Any insight would be appreciated.

Self-employed individual with a 401k/PS plan has a net schedule C  for 2016 (before 1/2 SE tax and before his PS contribution) of 100,000.  The 404 deductible contribution is 18587 (provided I did that math correctly).  He can contribute the 18587 for PS and then max out the deferrals, 24000.  The total deductible contribution becomes 42587.    The individual, however, made a contribution in excess of this amount.  Any suggestions on how to remove that excess?  could it be returned and considered a reversion subject to 4980 excise tax?  I understand about the excise tax for nondeductible and "using" up that amount in subsequent years, but there may not be compensation in 2017, so we are looking at how to remove it from the account, if possible.  

I've got a participant who took a hardship distribution from the plan to pay medical expenses (using the safe harbor hardship rules).  We now find out three months later that the participant used the money for other purposes... so those invoices are still unpaid.  Now he is asking for a hardship using the same bills he provided before (or maybe they are updated versions, but it's the same amount for the same place).  Is there any reason the Plan Administrator can deny the request under the regulations?  He has enough of a basis to take the amount again.  Thanks!

Has anyone considered the issue of whether a retirement plan can permit the employer discretion over whether to approve an employee's application for phased retirement without violating the definitely determinable benefits rule?

Basically, the idea behind allowing phased retirement is that they want to hold onto a valued employee on a part-time basis so the employee can train a replacement.  But they don't want to offer phased retirement to someone in other situations--e.g., if there are many other employees with the same skills, so they don't need the outgoing one to train the incoming one.

It's a governmental plan, so we're not concerned about discrimination in favor of highly compensated employees.  And I wouldn't have any issues if they said from the beginning something like, "Phased retirement is available only to employees in the X department," or "Phased retirement is available only to employees who are level Y or above."  But can they retain the discretion to decide when the employee applies whether or not to grant that employee phased retirement?

My concern would be that Employee A requests phased retirement, and gets it.  Employee B is denied phased retirement, but then requests and receives part-time status.  So in effect the employer has exercised its discretion in such a way that Employee A gets benefits from the retirement plan, and Employee B does not, even though both are otherwise in the same situation.

We have an employee who is leaving and his benefit will be forfeited because he is not due to vest for a couple years.

Can we do the following:

1) accelerate vesting and pay the benefit according to the schedule?

2) offer him the exact same (or modified, even) benefit in a second agreement that is fully vested, and then just let the current benefit forfeit?

I'm concerned with (2) because I know that there are issues with replacing one benefit for another, but that doesn't seem to be the case here.  The current benefit is being forfeited pursuant to the terms of the plan, so we are in a position where we don't owe him anything -- why shouldn't we be able to provide a separate benefit, even if it looks like the one being forfeited?  It would be maybe an issue if he voluntarily forfeited it for a new benefit, but that isn't the case here.

Second random question.  If the Plan currently says the benefit will grow at 5% annually, can we revise the Plan to say the benefit will grow based on some other metric (e.g. company performance) starting on a future date (e.g. tomorrow or next month)?  Or is that an impermissible modification?

Plan sponsor offers hardship withdrawals but the plan document only requires a 6 month suspension for one of the participating employers. The client believes that they are not required to suspend deferrals at all for the other participating employers after a hardship distribution.

While the IRS uses the word generally in its description of suspensions I believe the context is that it could be longer or may not apply if deferrals are not withdrawn. Otherwise I'm unaware of any ability to bypass this minimum 6 month suspension requirement.

If they are not using a safe harbor definition for hardship is there some exemption?

At least the forums?

I'm not a fan.  :(

2 S corps own a medical practice as a partnership

Each S Corp receives distributions and a K-1 from the practice which 100% of the distributions are invested back into the practice

Each S Corp pays the owners W2 salaries

Do I use only the W2 compensation (paid by the S Corps) for retirement plan purposes, or do I have to add in the K-1's that the S corps receive regardless of it being given back to the practice?

I work with a company that just received a "Dear Taxpayer" letter, purportedly from the IRS, asking them to re-submit all Form 1095-Cs because they were incomplete, or not in the required format. Has anyone else seen a letter like this? I haven't seen any chatter online and am curious about its legitimacy. This appears to be a form "1865C" (which I can't find any reference to online), and directs us to send the 1095-Cs to a particular IRS stop in Kansas City (which I've also never seen referenced online). 

Any thoughts? Has anyone received something similar or seen anything about this?

Thanks much!

No contributions made to profit sharing plan for at least 8 years.  PS only plan.

I guess the contributions are no longer substantial and recurring.  So 100% vesting is probably triggered.

Are there any other ramifications?

Plan Year End = 12/31/16

Fiscal year = 08/01 to 07/31

What is the latest date a C-Corporation can fund Employer Contributions for the 2016 Plan Year?

Would anyone have a reference to the relative percentages of trustee vs. participant directed 401k plans.

Short of that, anybody want to hazard a ballpark estimate.

The things you find out long after they have already happened months ago!

Employer apparently, in mid-2016, simply wrote a check to a participant - did not run it through payroll. This was apparently treated as a "bonus" for no discernible reason. The employee held the check, then deposited it in DECEMBER. It was deposited (endorsed directly by the participant to the vendor) to the employee's deferral account at the vendor.

This is wrong on several levels. First, as an aside, the plan does not allow a separate deferral election on bonuses, so even if this had been done directly and otherwise correctly through payroll, it wouldn't have been allowable. Aside from that, this isn't a "deferral" because the participant already received the check directly. So really, this is an employee after-tax contribution. Also not allowable under the terms of the plan.

Only correction I see is distributing the amount, plus earnings. Seems like this would be reported in Box 1 and Box 5  on the 1099-R, since it is a return of after-tax employee contribution, (and a Code E in Box 7?) and the earnings would be reported in Box 2? Earnings, of course, would be taxable.

As to whether the employer correctly reported this on W-2 and did appropriate SS tax, etc., etc., it is their problem. We'll mention it to them, and they can work with their CPA...

Any thoughts would be appreciated.

Company offers three insurance choices for Medical, an employee can only choose one. Three Schedule A's are filed on one 5500.

Employees may also elect Drug coverage, offered as a separate self insured plan. Can it be filed on same 5500 or does Drug have to be treated as a separate plan.

(moving forwarded a megawrap is in place)

HR noticed they missed paying an ee a few vacation days in a paycheck a few months ago.

In correcting this missed salary, would the 401(k) be considered late and require lost earnings, even though the 401(k) is being deferred, withheld and deposited at time of actual payment of the portion of the salary that is late?

There's been some discussion on this topic over the years, and as far as I know, there's no concrete guidance from the IRS. Situation is where a participant legitimately requests hardship withdrawal, has all proper paperwork, etc., check is issued, cashed and deposited and deal falls through at closing. (And closing go sour quite often...)

Participant wants to know if funds can be deposited back into plan.

I've seen various solutions. QDROphile has sensibly suggested in the past that funds be delivered to escrow, then if closing falls through, redeposit to the plan. Seems defensible. My question on this is do you have problems with the investment provider and reporting, particularly due to withholding if it crosses calendar years?

Someone else (I think it was KevinC) suggested it could be corrected under EPCRS as an overpayment. While probably true, this should theoretically work only once, because part of SCP correction is changing procedures so it doesn't happen again.

You could just allow it to be re-deposited, under a "common sense" approach. Again, I'm not sure how different vendors/platforms might view or allow/disallow this.

You could take the approach that "too bad - it was a legitimate hardship when made, and you can't undo it." This actually seems like probably the most appropriate answer, although perhaps an unjustifiably harsh result for the participant.

All of this of course tempered by some of the incredibly asinine requirements by many mortgage LENDERS and what/how/when they require things to be done. It's conceivable that they might not allow the closing if the funds are in escrow? Seems ridiculous, but I've heard some strange scenarios.

Really just wondering if anyone has any other brilliant ideas/insights, or has heard of any pending guidance, discussion from the podium at conferences, etc... Thanks!!

Consider these circumstances:  An individual-account retirement plan that includes a 401(k) arrangement allows a distribution as needed to meet a participant's hardship need.  A participant submits a claim for such a distribution.  The plan's administrator approves the claim, and instructs the plan's trustee to pay the requested distribution.  But had the administrator read the participant's claim, it would have known that the participant was not entitled to a hardship distribution.

Assuming the plan is ERISA-governed, does the participant have a viable claim against the administrator for its approval of the participant's claim.  If there is such a claim, why is it viable or not viable?  If there is a claim, what is the measure of the losses that result from the administrator's breach?

I guess a court would dismiss a participant's claim.

But perhaps I suffer from a failure of imagination.

Can anyone pull together a claim a court would recognize?

Hello. Anyone know what the limit is on participants in Relius? I just received a plan with close to 5,000 participants from another administrator in my company. It's not on Relius because of its size, so testing, eligibility is all done manually. Does anyone have a plan this large that is on Relius?

Thank you in advance for all replies!