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!

There is a EE who was a non-union EE, he is now a union EE.  The plan excludes unions EE.  Can this EE take his money of of the plan  now because he is no longer eligible/excluded?

 

 

IF a participant's termination date is 12/31/17 but he is employed on that date , is his first calendar year for rmd 2017 or 2018? Seems like a simple answer but we have bot opinions in the office.  PPT is 70 1/2 in 2017

A 401k plan is written with a safe harbor match plan year calculation formula.  They fund the match per pay period and provide a true up after year end. 

They also fund lost earnings on the true up. I have never heard/seen this before. For example, if a participant is owed a true up, they fund it in September (for a calendar year end plan). They also calculate lost earnings from the last day of the plan year (12/31) to the date they fund the true up.

When asked why they fund lost earnings... "because this is the way we have always done it". They feel that since the match does not happen until September, they "owe" their employees the earnings. They feel that had the employee deferred evenly throughout the year, all their match would have been funded by 12/31.

Can lost earnings be funded on the true up? 

Thank you

 

Plan has immediate entry for deferrals.    A participant was hired on 9/17/2013.   (2/28 PYE).   Switched to 12/31 pye at 12/31/2014.   2% initial deferral, no increase.   

They have never included this employee, so have to make up for 2/28/2014, 12/31/2014, 12/31/2015, 12/31/2016, 12/31/2017 and January and February 2018. 

Is the missed Deferral, 2% or  do I use the ADP and give them 50% based on that?    

Never had this with automatic enrollment.   

 

Thanks

I have a loan out on my 401k.  In May I was out of work for two weeks and did not receive a paycheck.

So, one payroll deduction was missed of $ 93.61.   I received a letter from Wells Fargo regarding the missed payment and that if I did not bring the loan current the loan would default and then become a taxable distribution.  The letter stated I should call them, which I did.  The person who took my called stated they were unsure how I was to make a payment since this was a payroll deduction and they would call me back, if I had to do anything because is was a payroll deduction.  ( The person was not sure) I gave them my cell  number.

I received a 1099R so obviously the loan was deemed. I called 401 K and stated they were supposed to call and tell my how to correct the problem. They are telling me they call a office number at my work and left a detailed message on how to correct the matter????I did not  get that message.

They are telling me there  is noting that can be done once the loan is deemed. 

Can anything be done so I do not have to pay the tax on the loan????I am still making payment via payroll deductions.

 

 

 

Our client terminated their SIMPLE plan effective 12/31/17, and started a profit sharing plan on 1/1/18. They would like to make a contribution this week to the profit sharing plan for 2018, and they've already funded their 2017 SIMPLE.

Their fiscal year is 3/1 through 2/28. Are they able to deduct both the 2017 SIMPLE contributions and the 2018 profit sharing contribution on their 3/1/17 - 2/28/18 tax filings? They are two distinct plan years, but would be deducted in the same tax year.

Thanks for any insights -

This seems very important, so I'm reprinting it here -- it's a press release that was sent to me about ten minutes ago (Thursday, 3:10 p.m. ET):

BALTIMORE – February 22, 2018

Transamerica Expands Commitment to TPAs and Small Retirement Plan Market

Transamerica today announced that the services of a third party administrator specializing in retirement plans are required for new retirement plan business with less than $3 million in assets.

“Our experience is that smaller companies benefit significantly from the expertise of a third party administrator who can have deep conversations about their client’s business and goals,” said Joe Boan, senior vice president and executive director, individual and workplace distribution for Transamerica. “With this announcement, we are firmly stating that working with a retirement-focused third party administrator is a best practice for small retirement plans.”

Transamerica is demonstrating its commitment to third party administrators by raising the underwriting minimums for in-house administrative services. TPAs will have access to Transamerica’s streamlined retirement platform to help their clients.

“Transamerica values its alliance with third party administrators. We listen to TPAs’ needs and seek out their feedback about our retirement plan program, and we take action. We agree that small retirement plans benefit greatly from the direct guidance that retirement third party administrators offer,” said Boan. “We believe every company needs to have access to a quality retirement plan, and we are delighted for the opportunity to help more people pursue their financial goals for a secure retirement.”

There are many reasons small companies will want to consider using third party administrators for their retirement plans, including:

* flexible plan design support customized to meet the specific needs of both the business and their employees

* high levels of compliance and technical expertise on issues like loans and distributions

* enhanced consultative services

* the assumption of time-intensive responsibilities.

Transamerica believes that the future of financial wellness is the connection between wealth and health for a better quality of life. For decades, Transamerica has helped people pursue a lifetime of financial security. To learn more about Transamerica’s workplace solutions, please visit www.transamerica.com.

About Transamerica Retirement Solutions, LLC

Transamerica Retirement Solutions, LLC (Transamerica) is a leading provider of customized retirement plan solutions for mega- large-, mid-, and small-market organizations. Transamerica Retirement Solutions partners with financial advisors, third party administrators, and consultants to cover the entire spectrum of defined benefit and defined contribution plans, including: 401(k) and 403(b) (Traditional and Roth); 457; profit sharing; money purchase; cash balance; Taft-Hartley; multiple employer plans; nonqualified deferred compensation; and rollover and Roth IRAs. Transamerica Retirement Solutions helps more than 5.4 million retirement plan participants save for a lifetime of financial security. For more information, visit www.transamerica.com.


 

Can a governmental plan mandate that participants may only select a lump sum (in lieu of a month annuity) if the value of their accrued benefit does not exceed $5,000?  If so, can this be done without consent? 

Can we do an -11(g) amendment to change profit sharing allocation method from each in own group, to an integrated allocation with the allocation at 20% of the taxable wage base?