403b Guru's of benefitslink, please help me out with this one.

Client is a 501c3 and Im looking at what I was told was a pretty simple 403b (plan 001).  Nothing exceptional stands out in the plan document, participants get a 3% non-elective on top of a 50% match up to 4% of comp.  The plan files a Form 5500 every year.

After speaking to the accountant, what happens in practice is throwing me off a bit.  

• Elective deferrals in excess of 4% of comp are actually deposited to a second 403b plan (lets call it plan 002).  I havent seen a plan document for this plan, and no 5500s have been filed.  It sounds like its a deferral only non-ERISA 403b.
• Both plans are with the same provider
• Plan 001 does not mention anything about deferrals in excess of 4% of comp being funded to a different plan

This doesn't seem right to me, I would expect that plan 001 would have to spell out that it will only accept elective deferrals up to 4%.  Am I missing something?

What is the point of splitting elective deferrals into two plans?

any insight would be greatly appreciated.

If a new plan with more than 10 people elect to have a QACA instead of the EACA with safe harbor basic matching, would this satisfy the auto-enroll requirement under SECURE 2.0?

An owner is selling his business.  He will be paid in equal annual installments over the next 10 years, well over 6 figures each year.  He will not be working for the new owners and will likely be retired.

Would the income he receives from the sale over the next 10 years be considered passive income?  He is asking whether he can set up a solo 401k for himself, create a sole prop business entity for himself and use the annual payment to him as a basis for funding a solo 401k plan.  Is proceeds from a business sale considered passive income and prohibit him from using it for retirement plan purposes?

Thank you

Is it possible for a Plan to use different subsequent eligibility computation periods for different money sources?

For example, a Plan would like to do 1 year of service, with 1,000 hours, for the deferrals and safe harbor match, but do 2 years of service with 1,000 hours for profit sharing. They would like to "switch to plan year" to calculate subsequent eligibility computation periods for deferrals and safe harbor match, but use anniversary of hire to calculate subsequent eligibility computation periods for profit sharing. Is this possible? What additional testing would the Plan be subject to?

Does it say anywhere that the comp limit is the FIRST $345,000 earned? (for 2024)

My doc says "Compensation in excess of $200,000 [as indexed] shall be disregarded for all purposes other than for purposes of Elective deferral."

Does that mean someone who earns $700,000 a year, but doesn't start deferring until the second half of the year will get no match?  Doesn't make sense.  But plan sponsor and advisor want something in writing.

what are the most practical options (cost first, quality second) to offer a fully bundled Safe Harbor Match (Basic formula) stand-alone 401(k) Plan?  For a small company with 15-20 employeees (high turnover, bunch of part-timers).

With community property no longer nullifying the exception to spousal attribution, the following question has come up:

If an individual is an independent contactor and provides services(not management) to spouse's business 1 day per week and also provides same services to other businesses, would the spousal exception still apply?

The no participation clause states: the individual is not a director or employee, and does not participate in the management, of that business.  Taken literally, none of those things are true.

Is there more to "participation" than director/employee/management? 

First, was sorry to hear of Mike Preston's passing.  I had been using his PPA Present Values software for checking purposes for a number of years, and with his passing is no longer supported for interest and mortality updates.  Any other standalone software alternatives that are recommended?

Does anyone has experience with merging a non ERISA church 401k or 401a into a Non ERISA Church 403b plan? This is permitted under Code Section 414(z) as implemented by the PATH Act of 2015. I am interested in the mechanics of how to do this - lets say the 401k is the existing plan, but the Church wants to have non ERISA 403b plan. Would the client need a Board Resolution, along with a new 403b plan into which the current 401k can be merged? I believe there is a requirement that all accounts that are merged be nonforfeitable - i.e. fully vested. I realize there are no regulations on this issue to date. Any thoughts would be appreciated!

I answedred my own question but I thought this was interesting enough to share:

Participant takes a loan from the 401(k) Plan to pay for the higher education expenses of their dependent or themselves or their spouse.  Why does this not qualify as a "Qualified Student Loan"?

Answer:  SECURE inddicates that the following definition applies to qualifying student loans:

221(d)(1) Qualified education loan

The term "qualified education loan" means any indebtedness incurred by the taxpayer solely to pay qualified higher education expenses—

(A) which are incurred on behalf of the taxpayer, the taxpayer's spouse, or any dependent of the taxpayer as of the time the indebtedness was incurred,

(B) which are paid or incurred within a reasonable period of time before or after the indebtedness is incurred, and

(C) which are attributable to education furnished during a period during which the recipient was an eligible student.

Such term includes indebtedness used to refinance indebtedness which qualifies as a qualified education loan. The term "qualified education loan" shall not include any indebtedness owed to a person who is related (within the meaning of section 267(b) or 707(b)(1)) to the taxpayer or to any person by reason of a loan under any qualified employer plan (as defined in section 72(p)(4)) or under any contract referred to in section 72(p)(5).

Hi, 

I'm going to apologize ahead of time.  I'm a small business owner, and in no way a benefits expert.  

Our company has only 8 people in the plan.  5 of those 8 have ownership above 5% and thus are HCE as I understand it.  One more has a salary in excess of 150k, thus also an HCE.  We offer a 100% on the first 3% and 50% on the next 2% for our match.  We also have a profit sharing component to the plan.  

My understanding is that because we have the safe harbor plan, we're exempt from testing (ADP, top-heavy, etc) for the primary 401k.  However, our TPA is informing us that there is testing associated with the profit sharing component.  Is this correct?  We're looking to max out our portion as owners, and provide a different but equal amount to the two non-hce's and a 3rd amount to the one HCE that is a non-owner.  

My further understanding of the profit share is that we can only "share" up to 25% of the total compensation of all eligible employees, but that the money is pooled.  eg, 8 employees each making 100k, we would have no more than 200K that could be put into the profit share portion, and no single employee could crest the 69k combined threshold (unless with catchup contribution).

I'm hopeful someone here can provide some additional insight for me.  If we make a "profit share contribution" to all employees, HCE and Non, are we subject to testing?  If so, is there anywhere where I can plug in our numbers and understand my options?  Additionally, do we need to provide the same to all non-owner or non-hce's?   

Thanks for helping me through this.  Not my forte, and I struggle at times with our TPA's ability to explain our options and the laws we must follow.

I'm looking for service provider recommendations to determine Creditable Coverage re: Medicare Part D.   We have a client who has a high deductible health plan combined with an HRA that needs to obtain an actuarial determination as soon as possible.   It's a small client (roughly 45 employees) so any referrals to firms that are affordable (if at all possible) would be greatly appreciated.  Thank you. 

Hi,  A non-owner participant, DOB 01/22/36, terminated on May 10, 2022.   His RBD was 4/1/23, I believe.   His RMD forms were forwarded in late 2023 to the plan contact when I learned of his termination.   The contact never returned the forms because she never heard from the participant.

It turns out he died on May 5, 2022.  Primary Beneficiary was his wife, DOB 2/6/40.   Turns out the wife died March 18, 2023.  Her Beneficiaries are their two adult sons.  

Questions:

1.   I am right to think that since participant died before his RBD, no RMD’s are required for 10 years? (Per a certain webcast)

2. Since the wife died before his RBD, are the distributions still delayed for 10 years?  Is the wife now considered the participant when using the tables?  Which table?

This has stumped me and my colleagues.  One colleague suggested that this is pre-Secure, so the old rules apply, which really confused me.

Help!

I am embarrassed that I don't know how to turn the 417(e)(3)(B) factor that is published each year into a formula that would convert an account value into single life and J&S 100% survivor annuity forms at age 67 (or older age if the person is older than age 67). I've got clients who self administer their DC plans and they need to come up with the hypothetical annuities each year (with December 1 assumptions and December 31 account values) for the required SECURE ACT ERISA 105 disclosure. Is there a formula to convert lump sums into the annuity equivalents with the 417(e)(3)(B) assumptions that DOL requires? Even better, is there an easy conversion table like we see with 401(a)(9)?   

For example, Notice 2023-73 says that at age 67 there is a factor of 0.00920. How do you turn a lump sum into the single life and  100% jt and survivor annuity equivalents? There is a great calculator on the DOL web site, but it generates annuity equivalents that cannot possibly satisfy the Department's 105 guidance. It grossly understates annuity equivalents and must still be using the outdated 10 year CMT rate that was much lower in 2019. 

Actuarial firms I contacted are charging outrageous amounts. Is there some way to do this without hiring an actuary? Frankly, I'd like to learn. Converting a lump sum into annuities for a fixed term is easy. It's genrating a SECURE Act mortality table for age 67 and later years that has me stumped.

I was on my wife’s HDHP with an HSA  in January 2024 when I started a new job January 3rd 2024. My benefits started February 3rd 2024. I started a FSA with my benefits thinking since we had our own health plans that it was okay. I was wrong. 

I know my wife will need to return of excess since she has been contributing to the HSA. 

I need to know if she needs to return the money that her employer put in and her contributions in January 2024 since my benefits didn’t start till February. 
 

I have a potential client approach me with the following situation:

Established a Solo 401k in 2021 (he was only employee) & contributed for 2021, 2022.  He hired a full-time employee in the beginning of 2023.

The eligibility requirements (if relevant) were non-existent in the Solo 401k document (immediate entry).

For 2023, contributions were made & deducted for the owner, nothing for the EE.

For 2024, contributions have been made already for the owner.

What are his options for both fixing 2023 & making sure that the contributions made for 2024 are allowable? If I open a Qualified Plan effective for 2024, can he make the contributions for the EE covering both years?  Essentially, is this something that falls under the ability to "self-correct"?

Thank you

I've got this auditor on a couple of my large plans who insists on pro rating the final payroll and including that accrual on the 5500 Schedule H and audit report.

Example: weekly payroll, final week included on 2024 W-2 is the payroll of 12/28/24.  He will prorate the 1/4/25 payroll as 3/7 belonging to 2024, so therefore 3/7 of the deferrals on the 1/4/25 payroll must be counted as 2024 receivables and added to the 2024 reporting.  I refuse to add them to my administration, so we've got a reconciling item for that.

This is insane, right?  I'm no CPA, but I can't find any justification for this.  And it adds a bunch of extra work, which is even worse.

I'm meeting with the auditor next week, and I'm looking for something I can use to convince him to back off on this.  Any suggestions?  Thanks.

Pathology practice LLC owned by 4 doctors, had 12 other (NHCE) employees, operated a lab and sponsored a 401k safe harbor, cross-tested plan. Effective 5.1.2024, the practice LLC sold its business to Hospital, which employed all 12 staff people that had worked for practice LLC. The doctors remain employed by the practice LLC, which contracts their services to Hospital. I have little to no doubt that the practice LLC/doctors meet the IRS definition of 'hospital-based physicians'.

One of the doctors bought 1 share of Hospital. So, there is likewise no doubt that an affiliated service group now exists.

Hospital sponsors a plan that now benefits the 12 staff employees. It provides a 5%-of-pay profit sharing contribution to all Hospital employees, and sports a 401k safe harbor feature with a safe harbor match.

Here are some of my questions:

1-The practice LLC's plan can aggregate/is aggregated with the Hospital plan, right?

2-That permits the doctors to make 401k deferrals to the practice LLC's plan, to the 402g maximums, right?

3-Can the practice LLC make cross-tested profit sharing contributions to its plan for the doctors, since the employees of Hospital are receiving an amount from Hospital that serves as a gateway minimum?

4-For 2024, can the practice LLC plan compute profit sharing contributions and apply nondiscrimination rules just to the period of 1.1.2024-4.30.2024 for the 12 employees AND THE DOCTORS?

Pathology practice LLC owned by 4 doctors, had 12 other (NHCE) employees, operated a lab and sponsored a 401k safe harbor, cross-tested plan. Effective 5.1.2024, the practice LLC sold its business to Hospital, which employed all 12 staff people that had worked for practice LLC. The doctors remain employed by the practice LLC, which contracts their services to Hospital. I have little to no doubt that the practice LLC/doctors meet the IRS definition of 'hospital-based physicians'.

One of the doctors bought 1 share of Hospital. So, there is likewise no doubt that an affiliated service group now exists.

Hospital sponsors a plan that now benefits the 12 staff employees. It provides a 5%-of-pay profit sharing contribution to all Hospital employees, and sports a 401k safe harbor feature with a safe harbor match.

Here are some of my questions:

1-The practice LLC's plan can aggregate/is aggregated with the Hospital plan, right?

2-That permits the doctors to make 401k deferrals to the practice LLC's plan, to the 402g maximums, right?

3-Can the practice LLC make cross-tested profit sharing contributions to its plan for the doctors, since the employees of Hospital are receiving an amount from Hospital that serves as a gateway minimum?

4-For 2024, can the practice LLC plan compute profit sharing contributions and apply nondiscrimination rules just to the period of 1.1.2024-4.30.2024 for the 12 employees AND THE DOCTORS?

Trying to solve for a situation that keeps popping up 

- Cash balance plan 

- Participant with a deferred vested benefit dies. Death certificate indicates the individual was divorced.

- When we are on notice of a divorce through the death certificate, we ask the estate or beneficiary to provide a divorce decree or separation agreement to determine if there is a possible  DRO that was just never presented to the plan. Often times, the divorce was decades prior to the death and the beneficiary is therefore unable to locate any divorce documentation. 

- In these scenarios, does the plan sponsor have a fiduciary obligation to exhaustively seek out divorce documentation before paying benefit to estate/beneficiary? What happens if benefit is distributed to beneficiary and then ex-spouse comes forward with an old DRO. For what it's worth the plan document does not directly address these situations.  

- Would the same be true in scenarios where the participant divorced many years ago, they subsequently got remarried, and the benefit is payable to the new spouse. In these scenarios, the new spouse is almost never able to locate the divorce documentation. 

@QDROphile